Insurance sector, mainly contributes to economic growth and well-being that include management of risks, allocation of resources and mobilization of long-term savings. The insurance industry has to meet the standards of The Insurance Core Principles (ICPs), developed by The International Association of Insurance Supervisors (IAIS) to have a sound financial system. Like French is the language of love, in the same manner, accounting is the language of every business.
An accountant in the insurance business is responsible for completing numerous accounting tasks on a daily basis, because behind every good business is a great accountant who efficiently manages the accounting system.
Here is an overview on; why accounting plays a vital role in the insurance business industry:
Typically, accurate financial reports help businesses to take an informed business decision and these financial reports are prepared with the help of accounting that includes a balance sheet, profit and loss statement, etc.
These statements help the insurance entrepreneurs to understand the financial position of their firm and plan a budget that will reduce their expenses. Not only planning a budget, accounting will also help you to analyze whether your strategies are implemented according to the plan or not.
In the insurance business, claims management is the complex task. It involves a lot of calculations and documentation. To manage claims, a niche team is hired who is only responsible for handling the claims, but how much amount needs to be compensated and what are the deductions according to the government is the work of the accounting department. So the claims management process is subject to customer satisfaction; herein we can say that accounting also helps in increasing customer demand.
The accounting department in the insurance business has to maintain proper records of premiums of each and every individual. This will help them further while compensating for the claim amount. Maintained records also help during tax season, it saves a lot of time while preparing tax. These records can be stored in the cloud-based insurance accounting software such as Multiview financial software, Cougar Mountain Software, Sage Live, SAP anywhere and much more; this ease the process of recording the data.
Prevent Fraud and Detecting Fraud
Accounting plays an important role in detecting fraud; that means, you might have missed some entries to record in the books of accounts such as any deduction of your credit card or any charges your bank has applied, etc. Bank Reconciliation helps insurance business in preventing their firm from any sort of fraud. With the help of these statements, you can easily verify your books of accounts; whether there is any mismatch or missed entry in the books or not. This gives you a clear idea that your company is safe from unethical activities.
The most complex part of the insurance business is payroll processing. Usually, insurance carriers hire agency or field agents to sell their policies, but these field agents or agencies are on the basis of commissions and commissions are subject to income tax. So compensating commission to every field agent is not easy because each agent has its own set of the amount to be compensated. The accountants need to properly compensate the commission and even manage the payroll of the in-house team that includes salaries, incentives, employee benefits, etc.
Asset valuation is the process of assessing the value of a land, building or machinery when a company is about to purchase or sale any property or machinery. Insurance business might need an asset valuation while expanding their business, even accountants of these industries maintain the depreciation value of their assets for further financial crises.
Auditing in Insurance Agency
The accountants of insurance carriers look after the process of accounting for insurance business. They need to audit these agencies on an annual, monthly or weekly basis to analyze the growth of their insurance business. Mostly, accountants of insurance carriers, audit the agencies annually to keep a check on their performance and go through their books of accounts to prevent fraud.
Analyzing Investment Opportunities
Accounting also helps the insurance business owners, to analyze the investment opportunities in the market. Well, every entrepreneur knows that an investment in the share market is a good source of earning, but to invest in which company is the main concern; only a well-experienced accountant can help you with that, as they take their time to study the market and acquire knowledge of the current changes.
Every business is required to file the financial statements with ROC. In case your insurance business is a listed entity, then you need to file the same statement with the stock exchange as well. For both direct and indirect tax filing purposes financial statement and other information are required; which only an accountant can do, as they are authorized to file and prepare a tax for the firms.
Maintaining Cash Flow
The proper accounting system is responsible for cash flow that includes accounts receivable, payable, bank reconciliation, bookkeeping and much more. Cash flow is the backbone of every business and a minute disturbance in the cash flow can affect the revenue of the insurance business. So it’s the accounting department who is responsible to maintain the cash flow of the business with accuracy and efficiency.
From the above points, we can conclude that accounting in insurance business plays an important role in maintaining the smooth functioning of the business as well as the future growth. Now it’s up to you how efficiently you can manage insurance agency bookkeeping and accounting to maintain a sound financial system. Ignore accounting and accounting information and watch how your insurance business drains in the depths of competition.
But keep in mind that your time is precious don’t waste in managing your accounting tasks in-house, the best option in this competitive business era is outsourcing insurance accounting process to a reliable third party firm who is capable of managing whole accounting process with efficiency.
Author Bio – Eliza Davies holds seven years of experience as a financial advisor at Cogneesol; an outsourcing service provider. She assists startups and small businesses to grow by contributing her writing skills in finance and accounting, insurance, entrepreneurship and small business growth.