Global insurers face high costs of $ 15 billion to $ 20 billion to implement IFRS 17: WTW

The total cost facing the global insurance industry to implement IFRS 17 is estimated to be between $ 15 billion and $ 20 billion, according to a new global survey from Willis Towers Watson.

Although the estimated costs vary widely depending on the size of the insurer, the average cost of the program for 24 of the largest multinationals surveyed is expected to be $ 175-200 million each, and $ 20 million each for the remaining 288 insurers. said Willis Towers Watson. , which surveyed 312 insurers from 50 countries.

With a transition date of January 2023, IFRS 17 is an international financial reporting standard, which was issued by the International Accounting Standards Board in May 2017.

Kamran Foroughi

“This is an extraordinary number that will naturally lead to many questions from boards of directors and investors,” said Kamran Foroughi, Global IFRS 17 Advisory Leader at Willis Towers Watson.

“For many, significant improvements will also be needed in business processes and financial operations to effectively implement IFRS 17 and link to other measures,” he added.

WTW said the survey not only gave insurers the opportunity to benchmark their programs against their industry peers, but also revealed the key challenges insurers expect to successfully implement IFRS 17 – in the areas of people, data, systems and processes.

Other main findings of the survey include:

  • More than 10,000 full-time equivalent employees will be required to implement IFRS 17 for global insurers, presenting major challenges for their recruitment and retention strategies, both within and beyond their IFRS 17 programs.
  • Only 52% of respondents believe that IFRS 17 earnings / equity will be slightly or much more useful than current GAAP earnings / equity, and 54% believe the need for non-GAAP reporting will increase slightly or significantly. (See below for more comments on how GAAP, or generally accepted accounting principles, fit into IFRS).
  • Only 6% of companies in 2020 had a good understanding of the business implications of IFRS 17, but that number has now risen to 17%. Insurers believe the impact on the majority of key performance indicators (KPIs) is likely to be low. The KPIs considered most affected are those related to measuring earnings, new business, and return on equity / equity, WTW said.
  • Large multinationals made more progress on a scale of 0 to 5 (average: 3.5) than other insurers (average: 2.6), with the highest progress in EMEA (average: 2.9) and the lowest in APAC (average: 2.4).

Since Willis Towers Watson’s last survey in June 2020, progress has been made in areas such as data and IT workflows, although the establishment of a robust process designed to adhere to timelines. Tight reporting remains a challenge, WTW said in a statement.

However, little progress has been made when it comes to testing, disclosures and automation, WTW said, noting that process automation will be critical to the successful implementation of IFRS 17.

“There are obviously strong doubts as to whether IFRS 17 will lead to a more useful metric than current GAAP / IFRS standards. This is especially true in more mature markets, where we don’t see any improvement in cost-related KPIs, and insurers are actively planning additional new reports to help explain business performance, ”said Foroughi.

A representative from WTW explained via email that while US-domiciled insurers typically report under US GAAP, US subsidiaries of overseas-headquartered companies can also report under IFRS.

In addition, foreign subsidiaries of companies headquartered in the United States may need to use IFRS for that entity, both for local statutory reporting (where in some countries this is mandatory) and for reporting. local results that feed into the consolidated accounts of the group’s parent company.

In addition, the representative said, US GAAP is undergoing its own changes, called Long-Lasting Targeted Improvements (LDTI), which include a number of areas common to IFRS 17.

He noted that of the more than 300 insurers included in the survey, a number were US insurers, but country-by-country figures have not been released externally.

Source: Willis Towers Watson

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