IFRS 17 means the insurance industry is facing yet another round of regulation. As ever, legislative change will mean investment – both in terms of time and finance, as well as potential disruption to business as usual. And what may annoy many in the industry is that it’s not long since they went through the process of getting on the right side of the Solvency II regulation, which (according to the ABI) cost UK insurers in the region of £3 billion.
But instead of seeing regulatory change as disruptive and unwelcome, there’s a growing case to say that something like IFRS 17 can actually unlock a lot of benefits to insurance businesses. It’s all about how regulation is managed and your choice of partner when getting compliant.
Learning from Solvency II
Solvency II was especially tough for the insurance industry, with many years of uncertainty about dates and final measures. Even today, many insurers readily admit to having spent large amounts of money, only to end up with compromised, tactical solutions that enable compliance but add nothing – or very little – to better business performance. Indeed, it’s debatable as to whether any technical improvement was achieved in terms of systems and data.
Regulation can be a spur to make positive changes to performance, if the conditions are right. Insurers simply have to learn from how Solvency II was managed – particularly as a recent Deloitte survey indicates that 35% expect to spend €50 million on IFRS 17, with larger insurers expecting a cost of up to or even greater than €100 million.
The question is: how can those faced with investing in IFRS 17 be assured of achieving business improvement as well as compliance?
Finding the benefit in the regulation
IFRS 17 represents a significant change for many insurance companies, both in terms of financial results and finance operating models. Along with additional disclosures, this will have a major impact on the insurance industry and those evaluating its performance.
As many as 93% of the insurers taking part in the Deloitte survey believe that they will benefit from complying with the standard, citing benefits such as improved transparency of results, comparability across the industry, and better access to capital markets. Here are four key ways that IFRS 17 can deliver those crucial business benefits, alongside compliance:
1. Convergence of actuarial, operations, and finance
IFRS 17 will require a new way of working between the actuarial, business operations, and finance functions to produce the required information in the right format and context and support the end-to-end process.
Taking an accounting approach yields many benefits – for instance, with a subledger providing the bridge between actuarial and operations domains and finance. Not least of these is a single engine for IFRS 17 and other valuations (GAAPS and internal), extensive data validations, accounting processes triggered by events, and adherence to accounting principles.
2. Data is key
Insurers will need an essential change in the way data is collected, analyzed, and stored, with IFRS 17 altering the emphasis from a prospective basis of analysis and introducing a more granular measurement level. But what else can this data be used for?
The result of tackling the data required for IFRS 17 can deliver a single source of granular finance and risk data for machine intelligence and insights that add greater value to the business as a whole.
3. Analysis and machine intelligence for the business
Think about the type of data captured for IFRS 17 – cash flows, policy information, transactions, and that created through the measurement process, including profit predictions. Analysis and visualizing this data can help insurance operations more easily understand the profitability of products or lines of business, deliver information to support product design, identify claims hot spots, and provide information back to actuarial for modeling (for example, claims triangles). The possibilities are endless.
If your architecture includes a subledger for IFRS 17 that sits on a real-time platform, then more timely insights can be available to the business to improve decision-making.
4. Finance improvement (transformation)
Finance systems have traditionally been at the end of the queue for transformation budgets. And, while much improvement has been made to the underlying processes, the technology is still a barrier to agile change and forces a degree of manual processing and reconciliation. IFRS 17 will stress existing GL and consolidation engines and processes and is likely to highlight the underlying weaknesses.
Again, if your architecture is underpinned by a full subledger platform, this will form the linchpin for finance improvement and transformation.
Pinpointing the right approach
While there is much to do, there is still time to ensure an IFRS 17 approach that delivers business improvement as well as compliance. But is there such an approach that will also accelerate implementation and ensure a lower overall cost of ownership?
For me, the answer is yes. I fully believe it is possible, and there is still time. But the chance for insurers to act isn’t going to be around forever.