Over the past eight months I've been working with insurers in the Middle East on their IFRS 17 implementation projects and I have also been lucky enough to embark on a new career opportunity having now relocated to Dubai to lead PwC's Actuarial Services practice for the Middle East region.
In my first blog I provide my impressions of the insurance industry and the adoption of IFRS 17 in the Middle East and my top tips for a successful IFRS 17 implementation.
Change is coming
Regulatory pressures are on the increase with new accounting standards, growing reporting requirements, the introduction of more complex risk-based capital regimes, higher minimum capital requirements and mandated actuarial requirements to name a few. This, coupled with the rise of technology and the need to be able to better serve customers in today's digital world, means the insurance industry is at an inflection point.
Only the strong will survive
Most countries are dominated by a handful of large insurers with many smaller companies bringing up the rear. With all of the change on the horizon, many of the smaller insurance operations will simply not have the manpower to raise capital, innovate and survive. Without a doubt we will see consolidation across the market and an increase in merger and acquisition activity.
Most of the IFRS 17 activity in the region so far has been prompted by regulators. Whilst this is a positive step forward and encouraging to see engagement from regulators on such an important topic, in territories where the regulator hasn't initiated IFRS 17 requirements there has been near to no activity by insurance companies. This is worrying for a number of reasons, not least because the effective date of 1 January 2022 is not far away – if you set 2021 aside as a year for parallel reporting under the current regime and IFRS 17 (many regulators may make this mandatory, some already have), that leaves little over 18 months to assess, design and implement your new requirements to be compliant with IFRS 17 in time.
Top tips for a successful IFRS 17 implementation
How you can get on the front foot in determining the right options for your business and how best to plan and prepare:
- Don't delay and get started today – If you haven't started yet, don't panic, it's not too late but now is the time to prioritise. The amended Exposure Draft is expected at the end of June (with a comment period of 90 days to follow before the amended Final Standard is expected to be issued in the second quarter of 2020) but the agreed amendments are already available in the public domain (see here and here), so don't wait until the end of June, or for a mandate from your regulator – get started today.
- Understand the detail and the wider impacts - This is more than just a new accounting standard and will have far reaching impacts on your business – it's likely to be the biggest change your business will go through in our lifetime. Appropriate education and training will be needed across your business to upskill all the relevant people. Many businesses aren't just looking at how to align plans for data and systems but also how risk, finance and actuarial teams need to work more closely together. The need for a more coordinated approach is heightened by increasing regulatory demand, which will intensify the pressure on key systems and personnel.
- Establish your programme governance structure – You need a clear and common goal for your IFRS 17 implementation, which everyone in your organisation understands. This means you need clearly defined roles, responsibilities and workstreams. You need people who are armed with the right information to make the right decisions at the right time and who are going to keep your IFRS 17 programme on track. As part of your programme governance structure you'll also need to define your vision, scope and design principles – e.g. is IFRS 17 part of a wider finance transformation programme or ERP upgrade, or do you want to adopt IFRS 17 with minimum compliance.
- Don't underestimate the effort required - The type of products you write will drive the accounting models and options available which in turn will influence the expected financial and operational impact. Whilst it's fair to say many insurers across the region will be able to apply the simplified measurement model (the Premium Allocation Approach, PAA), discounting and a risk adjustment will still be required, not to mention a complete overhaul of your financial statements. So don't fall into the trap of thinking the PAA is easy. Allow sufficient time for designing, building, testing and implementing your core modelling and reporting infrastructure plus subsequent refining.
- Be clear on your requirements before making important decisions – All too often I see insurers wanting to start their IFRS 17 implementation programme by choosing a new piece of software to do the calculations required for IFRS 17. In my view, this then leads to the new software or solution dictating your own implementation requirements – whereas it should really be the other way round. Each vendor solution is different and every insurer is different - you need to pick the solution most suitable for your own needs (which may even turn out to be a self build). As a further word of caution, local technology vendors in the Middle East are in the early stages of developing their IFRS 17 solutions, and the larger vendors with initial solutions have limited presence in the region. So don't make quick decisions which you may later regret, instead make sure you first understand the key impacts on your business so that you're clear about what you want to get from your new solution
- Identify the right multi-disciplinary team and plan carefully – Make sure you have the right team and you address any skills gaps – the demand for skilled resources will only increase and you don't want to get caught short. Take the opportunity to make plans around the necessary investments in systems and data and how this could be aligned with any overall system and process upgrades you're planning. Current or planned systems upgrades or plans for new data collection or storage processes should take into account expected IFRS 17 requirements. This would help to avoid duplicated effort or other inefficiencies.
I hope you've enjoyed reading my first blog and that my reflections are useful for those of you thinking about your IFRS 17 implementation. I regularly travel throughout the region and so please do get in touch if you'd like to discuss in more detail.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.