Changes in insurance accounting: the road to implementation

“The way of progress is neither swift nor easy.”

Marie Curie could have been talking about changes in insurance accounting today. With significant regulatory changes around the International Financial Reporting Standards (IFRS) taking place, meeting the new rules will be a huge task for businesses.

In fact, we should learn from the lessons of prior regulatory-driven change programs to best prepare employees for large scale organisational change. These experiences have taught us that across a decentralised business, for example, regulatory changes can provide an opportunity for development that goes beyond just ticking boxes, and can prepare a business for the future.

Aligning behind a common strategy

Driving alignment and collaboration will be a key benefit of the introduction of the new standards, but this will be a significant challenge. IFRS17 will bring actuaries and accountants into alignment and push for greater collaboration as well as improved management. Similarly, IFRS9 has brought together and driven greater coordination between finance and risk teams. However this can be challenging to put into practice, as we have seen with the implementation of IFRS 15 for more complex transactions and determining whether the delivery of service to the customer is at a point in time or over time.

Perhaps the most fundamental aspect though is the understanding of the changing metrics and considering how this will impact the reported results. The challenge is as much about understanding the new approaches as it is about successfully communicating them to all stakeholders.

In doing this, consistency across the business is essential. Changing the culture from silo to collaboration and alignment will improve not just reporting, but also morale with an ‘end customer’ benefit too.

Getting the technological response right

Once the principles are agreed, we can begin to tackle the equally challenging task of developing a technology response. In our experience, this is the least explored area of the changes. There is no doubt that there are benefits. IFRS 9 and IFRS 17 can help to improve the quality and efficiency of financial reporting, including opportunities to streamline the chart of accounts and data collection, data storage and data dictionary solutions. However, implementing the changes to achieve this is not easy. The pressure on data and reporting systems from IFRS 15 alone has been much greater than before and demanded an overhaul of core systems.

Again, applying this consistently across the business is key. In global, disparate, businesses common systems can really help. A central consideration of all aspects of the reporting and related system requirements allows for greater efficiency, better monitoring, more confidence and better education of those engaged with the systems. It also makes for a smooth soft-landing, which is more likely to succeed.

Technology is the cornerstone of all change

It is very clear that technology is the cornerstone of all the changes. IFRS17, for example, presents an opportunity to kick start more radical change to insurance technology and enable greater compliance. However, no single technology vendor has an end-to-end solution so most business need a multi-vendor or self-build approach. With that will be the need for internal upskilling that can be employed to tackle potential resource constraints.

Team collaboration, and a culture that encourages challenging the norm, provides the perfect environment for embedding new technologies, such as robot process automation, cloud and data marts. This new tech can have multiple benefits, helping to automate manual processes, accelerate actuarial run times and improve access to data to create greater capacity and efficiencies. Ultimately, you need to develop and implement unifying and complementary systems. This will drive long term efficiencies and create ancillary benefits beyond IFRS.

Evolution not revolution?

In some cases you won’t need to reinvent the wheel. For example, it would be worth assessing whether your current Solvency II processes will be able to be used to deliver a simplified measurement approach (the Premium Allocation Approach, or PAA), which would help reduce impact and cost. We would strongly advise getting this element of your systems assessed, but while using existing processes hold some value they don’t remove the majority of challenges completely.

Getting staff up to speed

The development and support offered to staff will make a dramatic difference to the introduction of any significant systemic changes. Another key learning for me has been how to position such a large change. How you communicate the IFRS changes could determine how successfully the changes are implemented. Confidently sharing and identifying development opportunities for staff across the business will be key. Enthusiasm and transparency will drive that equally important cultural change and also support staff morale in a time of change.

Digital tools will help you standardise high quality training across multiple centres. E-learning is portable, enables you to keep track of who’s done it and also allows for an evolving strategy to be introduced as the training process runs. While easy-to-use, they also allow you to focus classroom efforts on specific groups with specialist training specific to their knowledge levels and topics. To benchmark, we have comprehensive e-learning tools across IFRS17 and IFRS9, for example, which we’ve tested and developed with over 1,000 users so far.

A beneficial delay?

Talking to businesses around the world who are grappling with multiple layers of change across their organisations, there is one common question that they’ve all been challenged by; do they meet the demands of the new standards with sticking plasters or do they step back and make fundamental changes to their systems and processes? The delay in IFRS17 gives everyone the opportunity to take stock of their current positions, find possible alignments and make beneficial changes. Perhaps the delay gives business the welcome opportunity to bed-in fundamental change, with those choosing to act now seeing the greatest rewards.