Willis Towers Watson’s comprehensive global survey on IFRS 17 programmes – encompassing 312 responses from 50 countries – has shown where insurers are making progress and experiencing most difficulties in preparing for the new international accounting standard.
Keeping up to speed and preparing for IFRS 17 has already been a long and winding road for insurers (see ‘IFRS background and timeline’). Over recent years, we’ve worked with over 150 insurers around the world on IFRS 17 projects and seen first-hand the nature and scale of some of the challenges the standard brings.
Similarly to our inaugural survey conducted in July 2020, our ambition for this year’s survey was to add to the knowledge we’ve accumulated from those projects and provide the most comprehensive snapshot in the market of the insurance industry’s readiness for IFRS 17 as the months count down to implementation in January 2023. Carried out in April/May 2021, and with over 300 responses from insurers in over 50 countries (see Figure 1), this article summarises some of the key findings and our views on how insurers can address the issues they highlight.
In 2020, 56 were from Americas, 68 from APAC and 130 from EMEA. In 2021, 53 were from Americas, 111 from APAC and 138 from EMEA. In 2020, 84 were from composite insurers, 65 from P&C and 105 from Life. In 2021, 104 were from composite insurers, 67 from P&C and 141 from Life
“…our estimate is that IFRS 17 delivery will cost the global insurance industry between $15 billion and $20 billion.”
Perhaps the most surprising overall trend of the survey is that despite the greater progress made by the industry as a whole since our last survey in June/July 2020 many of those companies that previously reported being further ahead with their plans now say they are encountering wider difficulties with their implementation. This supports the idea that ‘the more you know, the less you know’, or in other words, it’s only when insurers really get into the details of the standard and how they translate into future business as usual (BAU) that all the potential issues come to light.
Looking then at some of the specifics examined in the survey:
Estimated costs vary significantly by insurer size, with the average programme cost for the 24 largest multinationals being US$175-200m each, and US$20m each for the remaining 288 insurers.
Extrapolating these figures, our estimate is that IFRS 17 delivery will cost the global insurance industry between $15 billion and $20 billion.
With so many ‘moving parts’ because of multiple interconnected work streams, such as data, methodology, operating model, systems and disclosures, there is no escaping that IFRS 17 implementation is complex and costly. Nonetheless, we believe there are several ways to keep costs from ballooning out of control:
Insurers have reported a lack of sufficient qualified people to deliver IFRS 17 as a constant challenge throughout the various stages of development of the standard. That’s still the case now, with respondents to our survey citing it as their biggest concern over the next 12 months.
Numerically, insurers, both large and smaller, expect IFRS 17 to require many internal and external ‘hands on deck’ throughout the rest of 2021 and 2022 (Figure 2). All told, we estimate that between 10,000 and 15,000 full-time equivalent people will be required on IFRS 17 projects over that period.
42% think 1-20 people, 29% think 11-25 people, 13% think 26-50 people, 6% think 51-100 people, 5% think over 100 people and 6% don't know.
To a large degree, the principal challenge is having the right people doing the right things at the right time. Approaches that can increase the chances of that happening include:
Nearly two thirds (64%) of respondents reported they are more than halfway through IFRS 17 implementation, with significant progress having been made since 2020 (Figure 3).
In 2020, 11% had not started, 46% was less than halfway through, 40% was more than half way through, 2% were finished and 1% didn't answer this question. In 2021, 5% had not started, 28% was less than halfway through, 64% was more than half way through, 2% were finished and 1% didn't answer this question.
Taking the industry as a whole, a reasonable stake in the ground seems to be that insurers are halfway through preparations for IFRS 17.
Beyond the previously mentioned lack of qualified resources, the other principal hurdles that insurers say they need to overcome in the next 12 months are issues with IT, systems and tools and working through their IFRS 17 methodology (Figure 4).
Once insurers have understood the IFRS 17 technical specifications and different reporting approaches, some broad process and methodology traits should, in our experience, support continued progress towards implementation and ultimately wider business efficiency:
An area investigated in the survey was the degree to which insurers think IFRS 17 will be a useful metric for investors. Interestingly, only 52% believe it’s likely to be more or much more helpful than equivalent GAAP reporting. Furthermore, 54% of respondents say they expect to see an increase in supplementary reporting as a result of IFRS 17.
The key thing, as we see it, is to keep in mind the purpose of IFRS 17 – to make insurance financial statements more understandable and consistent for a wider range of investors.
Questions for insurers to ask themselves therefore will include:
The survey provides an enlightening snapshot of where the global insurance industry is with its preparations for IFRS 17. Plenty remains to be done for certain, notably in the Asia Pacific region, but the progress made over the last year in particular should also be applauded.
The implementation date of January 2023 will, however, be upon us before we know it. Importantly, this is as much a start point as a finish line. By that we mean, specifically, how will preparing IFRS 17 disclosures become part of BAU and, just as importantly, how can the need to do so be turned into a business benefit?
To date, these are questions that, in our experience, very few companies are contemplating as they focus on getting the numbers right. But they are not questions to be left until after implementation we would suggest.
“IFRS 17 is not just a new way of presenting insurance industry financials. It’s fundamentally a process transformation programme.”
For insurers, IFRS 17 is not just a new way of presenting insurance industry financials. It’s fundamentally a process transformation programme; one which, with astute planning, can offer broader business process improvements – through more intelligent use of people, better data flows, more flexible and interconnected systems, efficiency and improved governance through use of automation and a greater depth of management information.
Those insurers that can keep their eye on these kinds of prizes should benefit the most both in terms of how their IFRS 17 financials support better investor relationships and what they get out of it as a business in the process.
Kamran Foroughi is Global IFRS 17 Advisory Leader at WTW and has been with the firm for over 25 years. He has led large implementation projects with many insurers and other stakeholders on IFRS 17, strategic reviews, process transformation, annuity redress, Solvency II and related matters.
