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Why the insurance industry needs actuaries more now than ever before

14 March 2019 Mazars

The insurance industry is gearing up for one of its most radical financial reporting changes in the last two decades, and insurers are running out of time to interpret and apply these new requirements to their insurance contracts and reporting.

This is according to Julian van der Spuy, Actuarial Manager at Mazars, who is referring to the introduction of International Financial Reporting Standard 17 (IFRS 17) and adds that medium and smaller-sized insurers will be especially affected. “The new standard places significant emphasis on data granularity, governance and transparency across an insurer’s reporting chain. It will not only impact the way that insurers conduct their financial reporting, but also ultimately the way in which many insurers structure and manage their products. Actuarial analysis is integral to this process, and IFRS 17 will see actuaries working more closely with insurers, particularly across their finance and technology departments, compared to before.”

Van der Spuy explains that one of the main challenges that IFRS 17 aims to address, is the fact that the accounting for insurance contracts currently varies significantly between insurers. “In many cases, this means that the underlying financial performance of insurance contracts are often unclear, which has made it exceedingly difficult to compare insurance contracts across different industries, products, companies and jurisdictions.

He says that IFRS 17 requires that insurers take a much more granular approach to their data analysis, modelling of insurance contracts and financial reporting. “It stipulates that insurers set up data capturing procedures and systems that report on insurance contract revenue, insured claims and expenses, insurance service results, investment income, insurance finance expense, net financial results, profits and losses, and insurance liabilities and total comprehensive incomes.

With this in mind, Van der Spuy says that accommodating the new reporting standards will most likely require either additional (or new) data systems or enrichment of existing data, significant process enhancements and the integration of the actuarial and finance function. “Actuaries, accountants and business analysts will play a significant role in setting up the data capturing systems, as well as interpreting the vast amount of information that will be collected. The auditor is also vital in this process to ensure that findings are correctly reported to external auditors and that proper controls and governance procedures have been implemented. This means that insurers should engage with an auditing firm that either has capable in-house actuarial, accounting and IT skills, or existing partnerships with such firms.”

The bad news, according to Van der Spuy, however, is the fact that companies have less than two years left to comply. “Insurers will be expected to submit their first IFRS 17 compliant reports by 1 January 2021, along with retrospective reports for the previous year for the purposes of comparison. While most of the largest insurers have already begun the process of changing their data collection systems and procedures, there are still companies that have not started.

“This is a complex and cost-intensive process that may take up to three years to complete, according to some estimates, so it is crucial that these companies partner with a service provider who can help them to fast-track these measures,” he says.

In closing, Van der Spuy states that these adjustments may be a costly and daunting prospect for the insurance industry, but IFRS 17 also presents significant opportunities. “Once these principles are embedded within the business, they have the potential to make an insurer’s management of its contracts and associated risks significantly more efficient and cost effective. So while it may seem daunting now, there is actually a lot of long-term benefit in becoming IFRS 17 compliant,” he concludes.

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