The insurance industry is going to become more complex and costlier to operate in as a result of the new International Financial Reporting Standard (IFRS 17), according to a whopping 97% of senior UK insurance professionals.
IFRS 17 will fundamentally change the face of accounting, demanding greater detail in financial analysis and increased co-operation between actuarial and accounting departments. Under the regulation, insurance companies will have to report in greater depth on how insurance contracts affect their financial position.
But while the consensus in the industry is that IFRS 17, which becomes effective in 2021, will add to an already complex landscape, the overwhelming majority say it will also be a force for good.
Ninety two per cent (92%) believe the new standard will improve financial transparency, and 84% expect it to deliver additional benefits beyond compliance, according to new research from analytics firm SAS.
Many went as far as to say that the regulation is potentially vital: 87% of organisations believe the standard is crucial for the survival of the insurance industry, or will, at least, increase its robustness against future shocks. However, just over one-in-10 view the regulation as solely a compliance exercise.
“While the deadline may seem some time off, UK insurers must not wait excessively for a clearly defined interpretation of what IFRS 17 compliance means,” Lee Thorpe, head of risk business solutions at SAS UK & Ireland, told Insurance Business.
“Insurers should be prepared to start planning and considering their options early, adding strategic capability that can accommodate flexibility and scalability to future-proof the business.”
Ratings giant Fitch has described the impending IFRS17 as one that is likely to be challenging for insurers “both operationally and financially,” particularly compared to IFRS 9, which came into force at the beginning of 2018.
“For insurers, the coming few years represent a significant challenge to transition to a new accounting era of increased transparency, granularity and comparability. In line with a concerted effort to better reflect the impact from changes in the economic environment on book values, IFRS 9 should be viewed in tandem with the imminent introduction of IFRS 17, which is expected to have a more significant impact on insurers, both operationally and financially,” Fitch said in a statement.
“Investment assets and insurance contract liabilities are often managed together in the business model of insurers. Consequently, the interactions of the two new reporting standards may potentially have effects on their financials, and insurance companies will have to consider carefully their implications.”