When it comes down to insurance operations and financial services then there are many aspects to focus on but the one aspect that you can never ignore while dealing with such types of operations is data reconciliation. Data reconciliation holds the same importance in the field of finance since its introduction but the way data reconciliation is done has surely changed throughout the years.
There used to be a time when the complete data reconciliation process was done manually but since we are living in the era of automation, now, data reconciliation is no more a manual job. But there are still many companies that still struggle with fully automating the data reconciliation process and thus they are still dependent on the manual process. The cost of dealing with the data reconciliation process manually can reach up to millions of dollars.
Nowadays, all insurance companies need to work on their data reconciliation process and come up with an ideal way to deal while overcoming the challenges. So, in this blog post, we are going to address the challenges that firms deal with while working on financial data reconciliation.
The real challenges of data reconciliation
The two most common types of data reconciliation that both financial firms and insurance firms have to deal with are transactions and accounts. The account-based data reconciliation deals with accounts that have migrated across the business along with sunsetting accounts, new accounts, and much more while reconciliation of transaction deals with everything ranging from an internal account transfer to trades and payments.
Even in the modern era, reconciliation is a labor-intensive process especially when the main objective is that everything ranging from financial records and transaction data to account information must be matched with their sources. With such an aim, most of the firms find themselves dealing with financial data reconciliation throughout the day.
This is where a lack of data integrity hampers the organization’s ability to completely automate the data reconciliation process. According to research done by the United Kingdom Insurance Industry, there are only 42.5% of insurers who have been able to successfully achieve a 90% rate for matched premium payments and this is one of the biggest issues.
All the remaining insurers have rates between 50% to 90%. Such type of discrepancy rate is nothing more than a financial and operational burden on the entire industry.
The challenge of digitizing data reconciliation
Type of data
Moving to automation while dealing with the data reconciliation process might sound like a fruitful idea but moving from the manual process to the automated process is not as easy as it may sound. Some of the biggest issues in such type of transformation are the inaccurate data from senders, a wide array of file formats, and even the entire patchwork system.
It’s true that many standards have been developed to ease the process but still, there is a long list of transactions that can never be automatically reconciled because of the unstructured or inaccurate data.
Paper format
Another issue that most insurance and financial firms are going to face while dealing with the digitization of financial data reconciliation is the paper format of the documents. Even in the current era of digitization, the paper format is still relevant, especially when it comes to invoices and claim settlements.
Even after transmission, the payments received through such paper formats can never be universally standardized, and therefore, it becomes one of the biggest challenges for firms to verify and match with a transaction or account.
Patchwork nature
Another issue that most firms have to deal with is the patchwork nature of a wide array of enterprises. This mostly happens because of mergers and acquisitions that the company goes through throughout its lifetime. It’s true that it is the financial industry that remains the most active industry when it comes to mergers and acquisitions and this is why, in the last 30 years, financial industries have dealt with more than 30 thousand deals based on mergers and acquisitions.
There are many technological roadblocks a company has to deal with during mergers and acquisitions, regardless of the size of the transaction. Even a small change like adding a product line to the firm puts on a lot of burden on the IT department as during such processes, different systems are tied together. In addition to this, old legacy tech, paperwork, and other roadblocks make such changes more cumbersome.
This simply means that if an insurance or financial firm is planning to digitize and then automate its data reconciliation process then it will first need to deal with all the technological roadblocks mentioned above and till then, they have to rely on the manual process. But the bitter truth is that still only 4% of the insurance companies have been able to fully automate the entire process.