The vast majority of insurance companies worldwide are not prepared for the incoming accounting standard IFRS 17, despite recognising the significant risks it poses to their business.
Data from 240 insurance firms reveals that 92% have yet to put their solutions in place, and that 88% know they will need to invest in new processes to support disclosure requirements.
That is according to a new report by Aptitude Software, with chief technology officer, Martin Redington, warning IFRS 17 will be the "most significant change to insurance accounting that has ever taken place".
"Time is of the essence. It is a massive project with significant risks, and there is not a one-size-fits-all solution, bespoke solutions are required," he said.
"Insurers need to be selecting their vendors now and working on implementing IFRS 17 financial accounting solutions to avoid the skills shortage and ensure they comply in time."
The report shows that 78% of insurance companies are still in the early research and impact analysis phase of implementing the accounting standard, which comes into effect at the start of 2021.
It identifies a wide range of challenges that insurers will need to overcome, with 84% of firms having cited having a disparate actuarial environment as being a constraint to delivering consistent calculations.
In addition, it was found that 39% of insurance companies expect to kick off their implementation projects in the second quarter of this year, suggesting a huge demand for expertise at the same time, and a potential skills shortage.
Ernst & Young estimates that smaller life insurers with less than $10bn (£7.4bn) of gross written premium will need a budget of $25m to comply with IFRS 17, while those with more than $25bn will need to spend approximately $150m.
"Insurance company profits are under duress as many sectors have become commoditised and many firms recognise the need to innovate their offerings and operations," Redington continued.
"In a post-IFRS 17 world, it will be difficult for CFOs to service the many financial and regulatory requirements without an approach that centralises control of reporting and financial data.
"IFRS 17 is already proving to be the straw that broke the camel's back, driving insurance CFOs to modernise their financial systems."