Respondents say new standard will increase costs, but majority agree changes beneficial to insurance industry
An overwhelming majority (97 per cent) of senior UK insurance professionals expect the new International Financial Reporting Standard (IFRS 17) to increase the complexity and cost of operating in the industry when it comes into force. However, a similar number (92 per cent) also believe the new standard will improve financial transparency and 84 per cent expect it to deliver additional benefits beyond compliance, according to a new survey from analytics leader SAS.
IFRS 17 will fundamentally change the face of accounting . Insurance companies will have to report in greater depth on how insurance contracts affect their financial position. The regulation demands greater detail in financial analysis and increased co-operation between actuarial and accounting departments. While the standard does not come into force until January 2021, a majority (61 per cent) have already started preparation for the changes and 19 per cent classed it as a top strategic priority.
Other key findings from the survey include:
- 93 per cent of respondents think IFRS 17 will completely change insurers’ business models
- Almost all (99 per cent) of insurers are confident that they will have achieved compliance before the enforcement deadline
- 87 per cent of organisations believe the standard is crucial for the survival of the insurance industry or will, at least, increase its robustness against future shocks
- Only 12 per cent of respondents view the regulation as solely a compliance exercise
- A minority (37 per cent) believe they have the in-house skills and resources to achieve compliance.
Lee Thorpe, Head of Risk Business Solutions at SAS UK & Ireland, said: “While the deadline may seem some time off, UK insurers must not wait excessively for a clearly defined interpretation of what IFRS 17 compliance means. The changes are significant and will change the face of financial reporting. Insurers should be prepared to start planning and considering their options early, adding strategic capability that can accomodate flexibility and scalability to future-proof the business.
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“Insurers should adopt an iterative approach to compliance and 60 per cent are planning a tactical strategy before refining the solution closer to the deadline. Systems and processes with a strong emphasis on data management and governance will be crucial and preparation for IFRS 17 may see the aggregation of existing data sources into one platform to centralise data, reduce ongoing operational costs and mitigate business disruption.”
The cost of compliance
The new regulation will stretch the technological resources of UK organisations to the limit. While the financial impact of IFRS 17 will differ considerably between organisations, nearly all respondents (90 per cent) are preparing for costs greater than those incurred by the Solvency II Directive.
Most UK insurers say their current systems are not up to the task and are preparing for major alterations, from upgrades to replacements. Data management systems will experience the greatest upheaval, with 84 per cent of respondents planning to upgrade (59 per cent) or replace them (25 per cent). Accounting and actuarial systems will also see significant change, with 83 per cent and 81 per cent of companies preparing for investment in each area, respectively.
The benefits of IFRS 17
Most respondents believe IFRS 17 will have a positive impact on their systems and processes. Almost all (97 per cent) expect improved processes and automation to result, and that those improved capabilities will benefit other parts of the business. The same number also claim the changes will help them modernise their financial systems.
A transformation in progress
At this stage, planning is essential. The majority of respondents (77 per cent) still expect interpretation of the standard to evolve considerably between 2019 and 2020. As a result, most companies (60 per cent) are taking a tactical, flexible approach before refining their solution closer to the deadline.
Nearly half (46 per cent) expect interpretation of the standard to be developed enough that they can be compliant in 2019, while only 22 per cent believe they will be compliant by the end of 2018. By contrast almost a third (31 per cent) will start their interpretation and compliance efforts in 2020 – just a year before the 2021 deadline.
The research report A Transformation in Progress: Perspectives and Approaches to IFRS 17 is based on a survey of 100 UK-based C-level executives, directors and senior managers working in insurance for their perspectives on the regulation. The majority (83 per cent) came from large companies of 500 employees or more. All survey respondents worked within their organisation’s finance department.