Insurers’ efforts around Finance Transformation have mainly focused on the immediate priority of IFRS 17 compliance. What’s beyond?
It’s time for insurers to think about the long term vision for the Finance function and make step changes to get there. And these five areas are where insurers should start.
The IFRS 17 requirements could result in accounting mismatches and volatilities in profit and loss—a direct consequence of the insurer’s reinsurance management strategy and contracts entered into today.
IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022. It states which insurance contracts items should by on the balance and the profit and loss account of an insurance company, how to measure these items and how to present and disclose this information.
With IFRS 17’s anticipated mandatory effective date of 1 January 2023 moving ever closer, all types of businesses, not just registered insurance businesses, need to start evaluating the impact of the Standard now.
Designing a future-proof operating model
Finance has the opportunity to showcase its value as an adaptable, efficient partner to the business, generating insights and analytics that enhance performance. Consider ways to reinvent your operating model and rethink the distribution of capabilities within your organisation (see How IFRS 17 Will Reshape Insurance Accounting?).
Outsourcing or offshoring more transactional business processes to allow Finance teams to focus on more technical and higher value activities.
IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. This requirement will provide transparent reporting about a company’s financial position and risk.
Building a modern and efficient actuarial function
Some insurers consume high level data, limiting their ability to interrogate and improve their analysis. Others are maintaining a collection of reserving models that are complex and time-consuming.
Reviewing the software and data solutions now will ensure they’re fit for a more integrated future – with a modern actuarial function that helps with understanding the impact of key levers introduced with IFRS 17 to quickly and clearly gain insights (see New Accounting Rules Put Insurers in the Spotlight).
Enhancing data and digital capabilities
For some insurers, ‘day one compliance’ has meant delaying or pausing some components of their strategic finance systems architecture and introducing workarounds. These have typically been a combination of spreadsheets and existing technology, increasing overall complexity and technical debt.
As insurers turn their attention to greater digitalisation of operations, we expect a focus on getting the ‘data foundation’ right.
This can mean one source of the truth for financial and actuarial analysis, rationalised end-user computing (‘EUC’) reliance, and automated integrations between applications – mostly adopting cloud.
Some insurers also need to align siloed working practices to join up the end-to-end solution. Attention can also turn to the delayed components.
Most will aim to reach a strategic end state that delivers modularity, is integrated and fosters innovation. Finance should no longer be seen as a back office function, and the data and systems should support insight generation to maximise top and bottom line results.
Automating and standardising processes
Finance functions spend a significant amount of time inputting, validating, reconciling and analysing numbers for processes such as closing, planning and forecasting.
A lot of that time can be diverted elsewhere with the right Enterprise Resource Planning (‘ERP’) and Enterprise Performance Management (‘EPM’) systems to build a single source of data and to automate transactional activities.
Organisations we have worked with to implement ERP and EPM platforms, particularly cloud-based ones, have eliminated the majority of spreadsheet-based work, strengthened internal controls, and improved how they deliver insights.
Streamlining processes – delivering quick wins
A full-scale Finance Transformation programme may be daunting – so start by looking for opportunities to automate processes that are manual, heavily spreadsheet-based and repetitive (see How Insurers Can Embed ESG into Finance?).
Insurers should prioritise quick wins based on the level of effort and cost compared to the benefit it will drive across the business.
IFRS 17 compliance is a milestone, not the destination. Insurers want the benefits from transformation now, and the technical knowledge needed for future change initiatives could be lost if the IFRS 17 team is disbanded post ‘day one compliance’. Reach out to your PwC contact if you’d like to discuss how we can help your Finance Transformation succeed.
AUTHOR: Alwin Swales – Partner PwC United Kingdom