Best Practices in Insurance Accounting & Reporting: Why Getting the Fundamentals Right Matters

In the insurance sector, where premium growth and underwriting frequently dominate strategic focus, accounting & reporting often remain an under-appreciated function of the day to day operation. Robust accounting practices are essential for the long-term success and regulatory compliance of insurance companies. Startup carriers and MGAs in particular, having a clean slate,  have an special opportunity to get it right...but still fail to get accounting and reporting piece optimally stood up. What then follows is completely reactionary - a stakeholder requests a report, and the system cannot generate that report. Humans are moved off of their assembly line to patchwork a report together. The report gets sent, but its not quite right, so the same humans are once again pulled off the assembly line to do even more patching and they finally get it right. But a month later, they are back at it again, creating a workflow habit that mushrooms out of control. 

Why does this happen?

It mostly do lack of solid foundation accounting systems and practices. If you are a startup insurer or MGA, how should you be thinking about your business strategy and where does accounting and reporting fit it? If it not part of your foundational functions, you will be setting yourself up for suboptimal productivity here that gets harder and harder to repair over time.

SETTING A STARTUP CARRIER OR MGA UP FOR ACCOUNTING & REPORTING SUCCESS

The Foundation First Approach

While many insurance companies are eager to implement cutting-edge technologies like artificial intelligence and advanced analytics, the fundamental truth remains: without impeccable basic accounting practices, even the most sophisticated systems will fail to deliver reliable results. The key is maintaining detailed, accurate records at a granular level, particularly for premiums and claims.

Early Integration is Critical

One of the most significant best practices is involving accounting teams from day one in system design processes. Whether implementing new policy administration systems or claims platforms, accounting's involvement ensures:

- Proper data collection at the required level of detail
- Seamless integration with regulatory reporting requirements
- Efficient vendor management (including critical details like FEIN collection)
- Alignment between statistical and financial reporting

Daily Reconciliation: A Non-Negotiable Practice

Just as banks reconcile their transactions daily, insurance companies should implement similar disciplines. Modern technology allows for automated reconciliation processes that can:

- Verify data consistency across multiple systems
- Identify discrepancies early
- Ensure accuracy in financial reporting
- Reduce manual intervention and human error

Internal Controls Matter

While it might seem old-fashioned, implementing robust internal controls and segregation of duties remains crucial. These controls not only protect against financial irregularities but also enhance data accuracy and reliability. This is particularly important given the complex regulatory environment insurance companies operate within.

Common Pitfalls to Avoid

Several common mistakes can undermine an insurance company's accounting function:

1. Treating accounting as an afterthought rather than a front-line operation
2. Failing to maintain sufficient data granularity
3. Neglecting daily reconciliation processes
4. Using inadequate accounting systems (like basic small business software)
5. Lacking automated reconciliation systems

The Technology Factor

While technology plays a crucial role, it's essential to choose systems that can handle insurance-specific requirements, including:

- Statutory line of business segregation
- State-by-state reporting capabilities
- Statistical reporting integration
- Automated reconciliation features

The Cost of Getting It Wrong

Inadequate accounting practices can lead to significant challenges:

- Time-consuming manual reconciliations
- Increased risk of regulatory non-compliance
- Difficulty in producing accurate financial statements
- Higher operational costs due to inefficiencies
- Potential audit issues

Summary
For insurance companies looking to strengthen their accounting practices, the path forward is clear: invest in proper systems from the start, involve accounting in strategic decisions, and maintain rigorous daily reconciliation processes. While this may require more upfront investment, it pays dividends in reduced long-term costs, better regulatory compliance, and more reliable financial reporting.

In insurance accounting, getting the basics right isn't just about compliance—it's about building a foundation for sustainable growth and operational excellence.