The majority of insurers are struggling to assess the impact of IFRS 17 Insurance Contracts, released in May this year, and to make it operational alongside IFRS 9 Financial Instruments, according to analysis from KPMG International, while calls for the standard to be delayed are growing
The research, conducted in October, surveyed 82 executives from insurers in 20 countries including 15 of the 20 largest insurance groups in the Forbes 2017 Global 2000 that report using IFRS.
The results show 85% are still assessing the impact of IFRS 17 or in some cases have not yet begun their assessment, while 65% say they are in a similar early stage with respect to IFRS 9. Further, 36% say their companies have yet to start any IFRS 17 or IFRS 9 project.
Resourcing emerges as a key challenge. While 12% of respondents already have over 50 internal full time employees focused on the project, 40% of firms have just five or fewer staff in place. For 80% of respondents securing enough people with the right skills is viewed as a significant hurdle. Moreover, 60% say they are finding securing the necessary budget a challenge.
Ferdia Byrne, partner, KPMG UK, said: ‘Large UK firms are at a similar stage of implementation to their global peers, but there is a lot of work to be done and late starters will face a double challenge. Not only will they have more ground to make up, but also may find it harder to find the right people to do that work.
‘Two-thirds of insurers told us they are keen to seize the opportunity IFRS compliance presents for business transformation. Leaving things until the last minute will not put firms in the best position to seize that opportunity.
‘Brexit adds an additional complexity for the UK industry, which does not yet know whether it will be applying EU or UK endorsed IFRS in 2021. Despite this, the only sensible course of action is to plan for a 2021 implementation.’
Mary Trussell, global insurance change leader, KPMG International, said: ‘The new standards are complex with broad operational implications, so it is understandable that insurers are taking time to assess the requirements very carefully. But unless companies get started, they could end up challenged to design and implement process and systems changes by 2021.’
Earlier this month the International Accounting Standards Board (IASB) published details of the support available to help with understanding the new requirements of IFRS 17, saying it recognised that implementing the standard ‘will be challenging’.
IASB stated: ‘Implementing IFRS 17 represents fundamental changes for some insurers. Many concepts in IFRS 17 are new; it is the first time an IFRS standard has prescribed the measurement of insurance contracts.
‘Because insurers currently use local requirements to account for their insurance contracts, they will approach the transition to the new accounting requirements from many different perspectives. Applying the requirements in IFRS 17 will prompt changes in insurers’ operations; for example, many insurers may have to upgrade their data, systems and processes.’
The standards setter has created a dedicated email address for questions about IFRS 17. While it does not provide a formal technical enquiry service, questions will be monitored to check for areas of difficulty. It has pledged to create additional webinars and webcasts discussing specific requirements, and has also established a transition resource group (TRG), which brings companies, auditors and regulators together in a public forum to discuss questions about implementing IFRS 17.
IASB stated: ‘In the coming months, we will continue to invest considerable resources to help insurers and others prepare for 2021.’
However major insurance companies have indicated they would like to see the standard’s implementation postponed. In the summer the chief executives of Aviva, Legal & General and Prudential wrote to Chancellor Philip Hammond claiming IFRS 17 would increase confusion, volatility, cost and complexity, and describing implementation of the standard as ‘an unnecessary, costly and risky proposition which is against the interests of the UK.’
At the beginning of December German insurer Munich Re called for a delay in implementing the standard which it said would be ‘very expensive’ and difficult for the public and media to understand. Jörg Schneider, Munich Re’s chief financial officer, said: ‘In light of the necessary testing and potential refinement, a delay to IFRS 17 would be good. The more time we get to prepare, the higher the quality and consistency we can deliver.’
Report by Pat Sweet