PwC’s IFRS 17 Health Check Survey 2020: Asia Pacific

The majority of respondents see IFRS 17 as an opportunity to enhance their data capabilities, improve their technology and transform their finance function. Only 16% of insurance executives say that they are working towards a minimum viable product, i.e. building a solution that will meet the minimum requirements of IFRS 17.

The approaches do vary by country. We noted that 90% of Korean insurers indicated that they see IFRS 17 as an opportunity to effect full finance transformation, whereas 55% of Singaporean respondents indicated that they are following a foundational approach, i.e. minimum viable product with a wider focus on enhancing their data estate.

Takeaways

The reporting requirements of IFRS 17 severely impact many functions within an insurance organisation, including data requirements, systems, processes, actuarial modelling, finance systems and processes. Many of these impacts only come to light as insurers start designing their IFRS 17 solutions.

The added complexity of IFRS 17 reporting can add significantly to reporting timelines if manual interventions are used to plug gaps. Finance leaders have to think carefully about their strategic goals, to ensure that they develop an IFRS 17 solution that doesn’t put undue reporting strain on their actuarial and finance teams.

Insurance executives say that they expect their IFRS 17 programmes to take them nearly three and a half years to complete, on average. The duration varies significantly between respondents, with more than 25% of respondents indicating that the duration will be five years or longer. The programme duration estimates were consistent across life and non-life insurers. Composites and reinsurers expect their programmes to take a few months longer.

Respondents believe, on average, that it will take an additional two and a half years after IFRS 17 implementation for their organisation to fully stabilise and return to business as usual.

We see significant variability in the progress made on IFRS 17 programmes. 10% of respondents say that they have not kicked off their IFRS 17 programmes, and a total of 44% have not started with detailed design. However, 10% of respondents have already started with parallel runs.

Takeaways

The estimated duration of IFRS 17 programmes shows how complex and challenging IFRS 17 implementation can be for life insurers, non-life insurers and reinsurers.

The effective date of IFRS 17 has been deferred by another year to 1 Jan 2023 in most countries, which gives insurers approximately 30 months to complete their programmes. Insurers that have not started with detailed design of their IFRS 17 solutions should take note of the time and effort required to design and implement the standard.

What is the expected duration of your end-to-end IFRS 17 programme? (months)

How far have you progressed through your IFRS 17 programme?

28% of respondents say that they expect a revision to their IFRS 17 strategy due to the effects of COVID-19 on their business. To a sizeable group of respondents (22%), it is unclear whether their strategy will be revised, as they monitor the development of the pandemic and its potential impacts on their business.

Insurance executes do expect delays to their IFRS 17 programmes due to COVID-19 business disruption. 15% of respondents expect significant delays. The majority of respondents believe that their IFRS 17 programme budgets will not be affected by COVID-19 impacts on their business, but 16% do believe that budgets will be cut.

More than half of respondents (52%) say that their programme is affected, as they don’t have the remote working technology in place for all of their staff to perform their IFRS 17-related activities. Many insurance executives are increasing their focus on digital transformation and/or cloud computing as a result of the impacts of COVID-19 related business disruption. About half of respondents do not have a clear view yet of how their organisation will react.

Takeaways

Insurance executives are facing a variety of immediate financial and operational challenges as a direct result of government mandated economic lockdowns. Finance leaders have to balance necessary cost cutting efforts with digital transformation initiatives, to strengthen the resilience of their business.

The general response from insurance executives indicates that IFRS 17 strategy and budgets are not affected, but that the implementation of IFRS 17 may take more time due to business disruption. Insurers that have implemented the necessary technology to allow their workforce to work remotely are able to continue with their IFRS 17 programmes without much disruption. Insurers that don’t have the technology in place are increasing their focus on digital transformation to limit disruption to their business.

Do you expect your organisation to increase its focus on digital transformation and/or cloud computing to mitigate IFRS 17 project risk and wider business disruption risk?

Do you have the necessary technology infrastructure in place to enable your staff to continue their IFRS 17-related activities?

Many elements of insurers’ system architecture are affected by IFRS 17. The majority of respondents say that they will enhance their existing core systems to meet the requirements of IFRS 17. Only 6% of respondents will buy new core systems as a direct result of IFRS 17.

44% of respondents are building new data mart capabilities to cope with the significant increase in data required for IFRS 17 reporting, whereas 31% are relying on enhancements to data marts that are already in place.

29% of respondents are looking to vendors for sub ledger solutions (for example, to set and release CSM). This is also the area where many vendors have placed their focus, as such solutions can generally be integrated easily into insurers’ current system architecture.

In terms of reporting and consolidation tools, more than 20% of insurers say that they have not yet decided on the IT approach they will follow.

Most respondents have engaged with vendors to understand their IFRS 17 software solutions. Half of respondents have already selected their vendor(s), and another 13% say that they are in in-depth discussions with shortlisted vendors.

Takeaways

In general, we find that life insurers are more likely to build or buy new systems than non-life insurers. For example, 41% of life insurers say that they will build or buy new core systems, compared to 9% of non-life insurers. This discrepancy could relate to the option to non-life insurers to apply the simplified PAA approach to measure their contracts. 54% of non-life insurers believe that all of their business will be PAA eligible, and an additional 14% do not have a clear view yet. We do expect some insurers to reassess their IT approach as they form a better understanding of their data and system requirements.

It is encouraging to see that most respondents have started discussions with vendors. 25% of respondents did however say that they don’t believe software vendors are ready to deploy their IFRS 17 software, and a further 32% said that they don’t have a clear view of whether vendors are ready. Many vendors are gathering additional requirements and releasing updates to their software as they work through the implementation process with their clients. We would expect vendors to release full-capability versions of their software in the coming months, as the requirements of the standard stabilise and industry consensus on best practice is reached.

What is your IT approach to the following systems?

Have you engaged with software vendors to gain an understanding of their IFRS 17 software solutions?

44% of respondents have or plan to increase their headcount as a result of IFRS 17 implementation, while 27% say that they don’t have a clear view of staffing requirements yet.

Insurance executives believe that their staff have an intermediate (66%) or limited (32%) understanding of IFRS 17. For insurers that have not reached the design phase, 62% of respondents indicated that their staff’s understanding of IFRS 17 is limited.

Respondents plan to upskill their staff through a combination of formal and informal, on-the-job training.

Takeaways

IFRS 17 is a complex standard which impacts many insurance business functions. The impact of the standard on the day-to-day reporting activities of finance and actuarial teams are generally well understood, and these teams is generally involved in the IFRS 17 programmes from the start.

Insurers do however have to consider the wider impacts of the standard on their business and their people. IT and data teams need to understand the new data requirements and processes required to produce IFRS 17-compliant reports. Sales, marketing and underwriting teams need to understand how business processes and KPIs may change (75% of respondents indicated that they have not started work on identifying and specifying IFRS 17 KPIs). The executive team has to consider how they prepare their workforce for IFRS 17, while considering how their reporting and messaging to the market will change in an IFRS 17 world.

Insurers need to combine multiple avenues of training to prepare their workforce for successful IFRS 17 implementation and business as usual reporting.

Have you or are you planning to increase your headcount as a direct consequence of implementing IFRS 17?

How would you rate your staff's understanding of the IFRS 17 standard and its impact on your business?