The IFRS 17 accounting standard is expected to cost the global insurance industry up to $20bn (£14bn) to implement, a survey by Willis Towers Watson (WTW) has uncovered.
The poll of 312 insurers from 50 countries is believed to be the most comprehensive survey on IFRS 17 to date, and found that expected implementation costs vary significantly by company size.
Average programme costs for the 24 largest multinationals are predicted to be between $175m and $200m each, and $20m each for the remaining 288 insurers.
Kamran Foroughi, global IFRS 17 advisory leader at WTW, described the overall estimated implementation cost of $15bn-$20bn as “extraordinary”, and said that it will lead to many questions form boards and investors.
“For many, significant improvements will also be required in business processes and finance operations to deliver IFRS 17 efficiently and link with other metrics,” he continued.
“With smart investment and the right people, an insurer’s IFRS 17 programme has the potential to help deliver long-term annual savings to show against the daunting up-front costs.”
The survey respondents expect that the equivalent of over 10,000 full-time employees will be required to deliver IFRS 17, which presents major challenges for insurers’ recruitment and retention strategies.
Only 52% believe that IFRS 17 earnings and equity will be more helpful than current generally accepted accounting principles (GAAP) earnings, and 54% believe that the need for non-GAAP reporting will increase.
Insurers also believe that the impact on a majority of key performance indicators (KPIs) is likely to be small.
Moreover, the findings show that since WTW's last survey in June 2020, the proportion of insurers who believe they have good understanding of the business implications of IFRS 17 has increased from 6% to 17%.
On a scale of 0 to 5, large multinationals scored an average of 3.5 when it comes to progress on implementation, compared with a score of 2.6 for the rest of the insurers. Progress is highest in the EMEA, with an average score of 2.9, and lowest in the APAC, which scored 2.4 on average.
WTW said that setting up a robust process designed to comply with tight reporting schedules remains a challenge, and that there has been little progress made in dry runs, disclosures and automation.
“Strong doubts evidently remain about whether IFRS 17 will lead to a more useful metric than current GAAP/IFRS standards,” Foroughi continued.
“This is particularly true in more mature markets, where we do not see an improved KPI benefit commensurate with the costs, and insurers are actively planning new supplementary reporting to help explain business performance.
“If insurers are to unlock value from IFRS 17 they should be aiming for significant business process improvements including automation, efficiency and auditability ‘out of the box’.
“This will save time and money, allowing experts to be deployed on higher value tasks and enabling insurers’ reporting functions to do more, faster and with less. Regulation can be a spur to drive performance, if the conditions are right.”
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Author: Chris Seekings