Why Accounting Is Important In Insurance

Why Accounting Is Important In Insurance

The insurance industry of a country mainly contributes to economic growth and well-being that include management of risks, allocation of resources and mobilization of long-term savings.

The insurance sector 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. Just like French is the language of love, accounting is also seen in the same manner as the language of every business.

Why Is Accounting Important In Insurance?

An accountant in the insurance business is saddled with the responsibilities of carrying out numerous accounting tasks on daily basis, because behind every good business is a great accountant who efficiently keeps financial records, compute tax, prepare payroll, etc.

In this article, we will look at why the importance of accounting in insurance, why accounting plays a vital role in the insurance industry. Some of the reasons are stated below:

1. Decision Making

Accurate financial reports help businesses to make healthy business decision and these financial reports are prepared with the help of accounting that includes a balance sheet, income statement, etc.

These financial statements help the insurance business owners to understand the financial position of their firm and plan a budget that will lead to a drastic reduction in expenses. Not only in budget planning, accounting will also help you to analyze your implementation strategies.

2. Claims Management

In the business of insurance, claims management is a very complex task. It involves a lot of documentation and calculations. To manage claims, a niche team is hired who is an expert in handling the claims, but how much amount needs to be compensated and what are the deductions according to the rules of the government is the job of the accounting department.

3. Maintaining Records

The accounting department of the insurance company has to keep proper records of premiums of each customers. This will assist them further while compensating for the claim amount. Properly maintained records also help during tax season, it saves a lot of time during tax preparation. These records can be saved in the cloud-based insurance accounting software such as Multiview financial software, Cougar Mountain Software, Sage Live, SAP, etc; this ease the process involved in recording the data.

4. Prevent And Detecting Fraud

Accounting plays a crucial role in fraud detection; 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 assists insurance company in preventing their firm from any type of fraud. Through these statements, you can easily verify your accounting records. This gives you a comprehensive idea that your insurance company is safe from fraudulent activities.

5. Payroll Processing

Payroll processing is the most complex part of the insurance business. Usually, insurance companies hire agency or field agents (marketers) to sell their policies to the general public, but these field agents or agencies paid based on commissions and commissions are subject to income tax. Therefore, compensating commission to every field agent is a difficult task because each agent don't earn the same amount of money. The accountants need to properly pay the commission and even prepare the payroll of the in-house staffs that includes salaries, incentives, employee benefits, etc.

6. Asset Valuation

Asset valuation is the process of assessing the value of assets such as land, building or machinery when a company is about to purchase or sale any asset. Insurance company might need an accountant for asset valuation while expanding their business.

7. Auditing In Insurance Agency

The accountants of insurance companies take care of the process of accounting for insurance business. They need to audit these companies on an annual or monthly basis to analyze the growth of their insurance business. Often, accountants of insurance companies audit the accounting records of their company annually to keep a check on their performance and also to prevent fraud.

8. Analyzing Investment Opportunities

Accounting also assists the owners of insurance business to analyze the investment opportunities available in the market. Well, all entrepreneur knows that investing in the share market is a good source of earning, but the particular company to invest in is the main concern; only an experienced accountant can do that, as they take their time to study the market.

9. Tax Preparation

At some specific period, every business is expected to file the financial statements with ROC. In case your insurance company is a listed business, then you also need to file the same statement with the stock exchange. For tax filing purposes, financial statement and other information are required; this can only be done by an accountant, as they are authorized to file and prepare a tax for the firms.

10. 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 heart of every business and a minute disturbance in the cash flow can affect the revenue of the insurance company. The accounting department who is responsible to maintain the cash flow of the business.
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