'Great resignation' piles pressure on life insurers

'Great resignation' piles pressure on life insurers | Insurance Business America

'Great resignation' piles pressure on life insurers

The ‘great resignation’ is piling pressure on life insurers that are racing to meet long duration targeted improvements (LDTI), a technology expert has told Insurance Business.

Life insurers are facing a “real strain” in meeting LDTI, driven in part by a resources and skills gap, RNA Analytics actuarial product director John Bowers said.

Bowers said he believed that, given the regulation date has been pushed back multiple times, carriers will be ready for the transition.

However, he said that there still are “challenges going on currently” that are driving up costs.

Modified accounting standard LDTI was first mooted by the Financial Accounting Standards Board in 2018, and has faced delays fuelled by the coronavirus pandemic. The regulation’s current go-live date for SEC filers is January 2023.

Industry costs could top $2 billion as companies work to get up to speed, PWC has estimated. In a survey of 26 companies, respondents told the consulting firm they planned to spend around $700 million on compliance. Meanwhile, 77% of those surveyed by PWC said their actuarial resources were not sufficient to implement the standard.

Challenges

Elsewhere, new insurance contracts standard IFRS 17 comes into force in 2023, and European businesses have faced hurdles in merging accounting and actuarial functions as they sprint to meet their deadlines, Bowers said.

A recent WTW survey of 270 carriers across 45 countries found that only 40% of 26 large multinationals polled and 20% of the other 244 respondents expected to deliver fully prepared IFRS 17 programmes on time.

US insurers are more prepared for this facet of LDTI, given a similar concept already exists under GAAP, Bowers said. However, with actuarial systems more likely to be “inflexible black box systems”, which sets US carriers apart from many European firms, this poses a particular challenge to US businesses.

“It’s a new concept, which requires some reworking of those actuarial calculations and actuarial models – and for some companies this hasn’t been straightforward because of the nature of the tools they are using, so that’s been a real challenge,” Bowers said.

While accounting and actuarial functions are most immediately affected by the change, the regulation is also expected to impact on areas such as customer service, data management and IT.

“You’ve got a cross-department project, breaking down those silos and ultimately creating data warehouses to centralize a lot of data and create a single reliable source for information,” Bowers said.

“That’s all against the backdrop of the great resignation concept that’s going on in the US and the UK, and in tech firms in general, which has meant there has been a real shortage of skills across a wide range of industries.”

Costs

Project costs are escalating, according to Bowers, as companies lean on external consultants to get the job done.

The companies that are best placed will take a longer-term view, Bowers said, and look to “modernize not modify”.

“If companies deploy efficient systems in the first place, it’s going to mean they’ll have fewer manual processes going forwards, more reliable outcomes, potentially lower running costs, and lowered management risk,” according to Bowers.

“There’s probably not a lot you can do to reduce the money you spend, but you can really try and get the most from it, whether that be through what value add-ons you can get from the results, but also by trying to future proof systems and infrastructures.”

The change is likely to drive a “material decline” in many life insurers’ reported GAAP shareholders’ equity, according to analysts at Fitch Ratings.

Fitch said in May that the change is likely to have “limited ratings implications” for life insurers.

Shareholders will be “key stakeholders” as the regulation comes into force, Bowers said.

“The board level will be very conscious of the impacts of LDTI on accounts and disclosures, wanting to understand those movements and put in place measures to try and stablilize that profit stream, both at the transition point and going forward in terms of new sensitivities that the bottom line may be subjected to,” he said.