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General Ledger conversions are a heavy lift for any insurance company, and they come with substantial costs. Your accountants already work long hours before an implementation project doubles their workload. Complex projects face considerable risk of failure during the lengthy implementation. 

There are a few reasons migrating from a legacy ledger to a new distributed system delivers significant benefits. 

For one, institutional knowledge of how data flows and processes fit together increases dramatically. With the proper focus and effort, data can get cleaned up. 

One of the most significant improvements that prepare you for the future comes from rebuilding the chart of accounts – the foundation of your ledger.


Why Redesign the Chart of Accounts?

Your chart of accounts, through the ledger account and the dimensions tracked on each transaction, sets your company’s foundation for data entry and reporting, plus calculations and allocations. And yet, it’s likely that your business looked drastically different 25 years ago when your general ledger was last implemented. 

Today, that ledger probably looks muddied after adding new lines of business, adding companies, changing processes, or coping with new regulatory requirements. 

For example, you may have two companies that use the same ledger account for different purposes. Or you may have to do complicated data gymnastics to build statutory reports. Worse yet, you may not be able to track the details of expenses at the necessary dimensions based on new business needs.

The result: Your existing chart of accounts looks like business spaghetti.


Avoid the Urge to ‘Lift and Shift’

A system conversion is the perfect time to revisit and analyze your current reporting, allocation, and data entry needs. All too often we’ve seen leaders and vendors bypass this opportunity because they are eager to rush through a system conversion in order to save costs. That’s called “lift and shift.” 

“Lift and shift” amounts to taking the old engine out of your VW Bug and placing it into the body of your new Lexus. Your bad data, weak account structure, and old processes will barely work in the shiny new system, and it certainly won’t prepare you for future business needs or use the new system to its full capabilities.

A strong chart of accounts offers executives the reporting they need to ask questions about the financials and to slice and dice the data in ways that help them more easily drive the business intelligently.


Whole New Dimensions

Traditionally, insurance companies tended to have a relatively limited number of dimensions tracked separately in their chart of accounts. That’s because mainframe ledgers often were a 25-digit string representing, for example, Company, Ledger Account, Expense Type, and Department. 

Beyond the limited dimensions, ledger account strings in legacy systems typically used long numbers that required a “decoder ring” or “data bible” to understand the data structure. With a limited number of dimensions, the number of Ledger Accounts had to be very large to accommodate data breakouts such as Line of Business and Reinsurance Type (e.g., Direct, Assumed, Ceded, Fronted). 

For companies using these legacy systems, report writing and allocations require monumental efforts. Users rarely update reports because of the complicated maintenance involved. Accountants then resort to spreadsheets with complex formulas and one-off changes to get results as accurate as possible from a muddled ledger.


Questions to Evaluate General Ledger Needs

TAC4 Solutions strongly advises taking the opportunity of a general ledger conversion to study all current business requirements. Start by answering important questions regarding your existing ledger and workflow: 

  • What reports do people wish they could get out of the ledger? 
  • Where is data entry difficult? 
  • What do the current allocations do? 
  • Where could new allocations improve data entry and data accuracy? 

These questions scratch the surface for building a robust set of business requirements that feed good information into rebuilding the chart of accounts.


Creating Optimum Balance

Most distributed ledgers today track many custom dimensions in the ledger. You want to identify the optimal number of dimensions your ledger needs. The more dimensions you have, the more detailed reporting you will be able to produce from the ledger. 

Note these benefits may change and add to some workflows, such as requiring more complicated data entry and data validations. It’s a balance.

Ultimately, redesigning the chart of accounts requires determining what level of detail you can leave in your operational systems (policy admin system, data warehouse) and reconciling that with the level of detail that will be handy for accountants to have in the ledger.

Beyond the limited number of dimensions, old systems can also suffer from low performance. Meanwhile, new systems usually allow for large datasets with little-to-no performance hits. We recommend moving more into the new ledger than compared to the legacy system.

Tips for Rebuilding Your Chart of Accounts

  • Each dimension should represent exactly one data element.
  • Aim for simplicity.
  • Do not embed logic into dimension values.
  • Dimensions must support necessary breakouts of data available in your current ledger.
  • Based on business requirements, dimensions must support necessary breakouts of data in your future ledger, including management reporting, statutory reporting, GAAP, tax, and ad-hoc reporting.
  • The dimensions should support as many Yellow Book or Blue Book pages as possible for turn-key year-end reporting.
  • Naming conventions for ledger accounts and all dimensions and dimension values guide users to code transactions correctly.


Strengthen Your Foundation for the Future

Building the most robust possible foundation in your chart of accounts will position your business for sustained growth and success. Conduct widespread and lengthy discussions about the dimensions in your current and future ledger.

Explore the benefits of reporting and whether other systems already contain the same data with the same level of detail. 

Like constructing an office building, the foundation’s strength ensures that what you’re building will last and endure the test of time. Your chart of accounts and related dimensions determine the viability of a new general ledger that will serve the company’s needs both today and tomorrow.

Benefits of a Properly Mapped Chart of Accounts

  • Accurate reports that meet almost any business need
  • Immediate ad-hoc reporting for users who understand the data structure
  • Detailed allocation accuracy
  • Unity of data and processes across companies and departments
  • Satisfy management requests quickly and accurately
  • Strong data-entry validations that maintain clean data and reports


Work with a Proven Partner

Each business requires a unique solution when building a new chart of accounts based on best practices. As your independent consultant, TAC4 combines objective insights and industry experience with your institutional knowledge and processes to help design a future-focused solution.

Contact TAC4 to discuss helping you design a chart of accounts that supports your complex insurance transformation project.


T. Alan Claypool

Mr. Claypool is the President of TAC4 Solutions, which instills organizational health by mentoring our clients into cohesive team behavior. Alan guides executive leadership and project teams into learning deep-dive behaviors that dramatically transform corporate cultures and personal choices. Alan holds a Master's degree in mathematics from the University of Illinois and a Bachelor of Science degree in mathematics from Furman University.

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