According to a WTW survey, most IFRS 17 programmes will require a pragmatic approach to deliver on time.
Insurers have reported that there is still a huge amount of work to complete in order to success fully deliver IFRS 17 ahead of the 2023 deadline according to a global survey by WTW.
According to WTW’s latest survey, entitled ‘IFRS 17: Will we make it insurers report material progress has been made since WTW’s previous IFRS 17 poll in 2021. However most survey participants also express ongoing delivery concerns resulting in the need to apply more shortcuts and simplifications in order to deliver on time.
The total cost faced by the global insurance industry to implement IFRS 17 is now estimated by WTW to be US$18-24bn. This represents a substantial increase of 20% compared to the original estimate made by WTW in 2021, primarily to reflect companies realising more work is required than first envisaged.
Kamran Foroughi, Global IFRS 17 Advisory Leader at WTW, said:
“The next 12 months are critical for the industry to deliver IFRS 17 programmes on time. The survey results lay bare the true scale of the challenge that inevitably means pushing more work post the “go live” date in order to maximise delivery confidence for the programme.”
Key findings from the WTW study, which polled 270 insurers from 45 countries and is believed to be the industry’s most comprehensive IFRS 17 survey, include:
- IFRS 17 progress
- Data, systems and processes
- Disclosure plans varied
- Business As Usual concerns
Only 40% of the 26 large multinationals polled and 20% of the other 244 companies expect to deliver fully prepared programmes on time.
More than 10,000 people will be required to deliver IFRS 17 in the next two to three years. WTW forecast challenges in insurers’ recruitment and retention, both in IFRS 17 programmes and related impacts elsewhere.
These are identified as top current concerns emerging from companies’ dry runs, requiring some of the greatest investment.
While 14 of the 26 participating large multinationals are planning a 2022 investor update on IFRS 17, most other firms are not. Similarly, while some firms are required by local statute to publish Q1 2023 IFRS 17 accounts and a few larger insurers intend to voluntarily, most companies are not planning Q1 2023 accounts.
Most companies expect a significant increase in people required to run valuation processes under IFRS 17. Many have little appetite for this, however, so are increasingly turning to significant transformation and harmonisation across all metrics, including the use of automation to address this.
IFRS 17 – new accounting rules for the insurance industry
European Commission passed Regulation (EU) 2021/2036. This means that IFRS 17, the new international accounting standard for insurance contracts, is now European law.
The complex set of regulations IFRS 17 will enter into force on 1 January 2023 and replace the existing interim IFRS 4 which has been in effect since 2005. The new standard regulates the principles with regard to the identification, method, valuation, reporting and the disclosures for insurance contracts.
Companies that are required to or want to report as well as create quarterly financial reports in accordance with the International Financial Reporting Standards (IFRS) need an opening balance sheet. Most likely, policies taken out before this date will also be at least partially treated as though they had been accounted for pursuant to IFRS 17 from the beginning.
All insurers for whom IFRS is an issue should prepare themselves actively and take on the topic of implementation in their policy administration systems soon. The implementation of IFRS 17 has a considerable impact on the IT architectures of insurers. While the previous IFRS 4 largely allowed for the retention of previous accounting practices – other than some individual special features – IFRS 17 poses new, far-reaching requirements. This will make the systems in which insurers reproduce regulatory requirements much more complex.
Despite certain similarities with the Solvency II regulations, IFRS 17 poses even greater challenges for businesses in terms of interpreting the standard, changing processes and the work required to implement it. For example, Andreas Brandstetter, CEO of the Uniqa Insurance Group, stated in his presentation of the preliminary figures for 2018 that the company would have to spend between 50 and 60 million euros to transition to IFRS 17. This amount is twice as much as the costs incurred as part of the implementation of Solvency II at the time. According to Brandstetter, there will then no longer be known factors such as premiums, losses and benefits.