The majority of insurers surveyed in a study by Aptitude Software are unprepared for implementation of the changes to insurance accounting required in the IFRS 17, the financial software specialist said in its first bi-annual Global IFRS 17 Readiness Assessment Report (GIRA).
92% out of 240 insurers surveyed have yet to put their IFRS 17 solutions in place and 88% recognise the need to invest in new processes to support disclosure requirements.
Martin Redington, Chief Technology Officer, Aptitude Software commented; “IFRS 17 is the most significant change to insurance accounting that has ever taken place and is the latest of many pressures facing insurance CFOs.
“Insurance company profits are under duress as many sectors have become commoditised and many firms recognise the need to innovate their offerings and operations.
“In a post-IFRS 17 world, it will be difficult for CFOs to service the many financial and regulatory requirements without an approach that centralises control of reporting and financial data. IFRS 17 is already proving to be the straw that broke the camel’s back, driving insurance CFOs to modernise their financial systems.”
IFRS 17 is a new global accounting reporting standard for insurance contracts which aims to align insurance company reporting across the globe.
The International Accounting Standards Board (IASB) suggests that 450 listed insurers use IFRS standards, which means approximately $13 trillion (£9.8 trillion) of total assets are impacted.
Key findings from Aptitude’s GIRA report show that the majority of insurers are beginning to take action but they are still at a very early stage in the planning and implementation process, considering change programmes are expected to run between 12-30 months.
78% of companies are in the early research and impact analysis phase.
Ernst & Young estimates that even smaller life insurers, those with under $10 billion Gross Written Premium (GWP), will need a budget of $25 million for IFRS 17 projects, and for those larger insurers with over $25bn GWP they will need to spend upwards of $150 million to achieve compliance.
According to the GIRA report, 84% of respondents cited having a disparate actuarial environment being a constraint to delivering consistent calculations while 88% of insurance companies highlighted that they would need new processes to support IFRS 17 financial disclosure requirements.
Redington said; “many insurers are coming to grips with IFRS 17, identifying the paths to address the financial accounting change requirements as well as the opportunities to modernise their actuarial and finance systems environments.
“88% of insurers we spoke to recognise the need to invest in new processes to support IFRS 17 disclosure requirements. We are working with CFOs and their finance teams to put software solutions in place to address the end-to-end IFRS 17 financial reporting process and to future proof their business capabilities.
“Time is of the essence. Insurers need to be selecting their vendors now and working on implementing IFRS 17 financial accounting solutions to avoid the skills shortage and ensure they comply in time. IFRS 17 is a massive project with significant risks. There is not a one size fits all solution, bespoke solutions are required. Without an appropriate plan and systems in place we will see more insurers requesting delays to the IASB with others resorting to brute force to meet the deadline.”
