Insurers Could Spend $20B to Implement New International Financial Reporting Standard: WTW Survey

Global insurers face a hefty price tag to implement a new international financial reporting standard, according to a new Willis Towers Watson survey.

The global insurance industry will spend between $15 billion and $20 billion to implement the standard known as IFRS 17. While the estimated costs will vary significantly by insurer size, the average program cost for 24 of the largest multinationals surveyed are expected to be $175 million-$200 million each, and $20 million each for the remaining 288 insurers, the survey noted.

Willis Towers Watson polled 312 insurers from 50 countries.

With a January 2023 transition date, IFRS 17 was issued by the International Accounting Standards Board in May 2017.

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

“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 added.

WTW said the survey not only provided insurers with the ability to benchmark their programs against industry peers, but it also revealed the top challenges insurers expect to face in order to successfully implement IFRS 17 – in the areas of people, data, systems and processes.

Other key findings from the survey include:

• Over 10,000 full-time equivalent employees will be required to deliver IFRS 17 for global insurers, which presents major challenges for their recruitment and retention strategies, both within and beyond their IFRS 17 programs.

• Only 52 percent of survey respondents believe that IFRS 17 earnings / equity will be slightly or much more helpful than current GAAP earnings / equity, and 54 percent believe that the need for non-GAAP reporting will either slightly or significantly increase. (See below for more comments on how GAAP, or Generally Accepted Accounting Principles, fit in with IFRS).

• Only 6 percent of companies in 2020 had a good understanding of the business implications of IFRS 17, but this has now improved to 17 percent. Insurers believe that the impact on a majority of key performance indicators (KPIs) is likely to be small. The KPIs thought to be most affected are those related to measuring profit, new business and return on capital/equity, said WTW.

• Large multinationals have made more progress on a scale from 0 to 5 (average: 3.5) than the remaining insurers (average: 2.6), with progress highest in EMEA (average: 2.9) and 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 workstreams, although setting up a robust process designed to comply with tight reporting schedules remains a challenge, said WTW in a statement.

However, little progress has been made with dry runs, disclosures and automation, said WTW, noting that process automation will be critical to the successful implementation of IFRS 17.

“Strong doubts evidently remain about whether IFRS 17 will lead to a more useful metric than current GAAP/IFRS standards. 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,” said Foroughi.

A WTW representative explained by email that, while U.S. domiciled insurers typically report under U.S. GAAP, the U.S. subsidiaries of overseas headquartered companies also may be reporting under IFRS.

In addition, overseas subsidiaries of U.S. headquartered companies may need to use IFRS for that entity, both for local statutory reporting (where in some countries it is mandatory) and for the local results that feed into the consolidated accounts of the parent group company.

Further, the representative said, US GAAP is going through its own changes, called Long Duration Targeted Improvements (LDTI), which include a number of areas in common with IFRS 17.

He noted that out of the 300-plus insurers included in the survey, a number were U.S. insurers, but the numbers on a country-by-country basis were not externally released.

Source: Willis Towers Watson

*A version of this story appeared previously in our sister publication Insurance Journal.