Australian insurers are behind their international counterparts when it comes to being prepared for new major new accounting standards, a survey of 160 global Insurance executives by KPMG International has shown.
The report covered insurers’ preparation for IFRS 17 (Insurance Contracts) and IFRS 9 (Financial Instruments), two major standards which apply for insurers from 1 January 2021 but for which two years of parallel running are recommended.
The survey showed just 7 per cent of insurers expect to be ready in time for this, and more than half expected just one year of parallel running before going live.
Scott Guse, KPMG Australia Insurance Partner, described IFRS 17 as the most significant accounting change for over 20 years in the life and general sector.
“Ten per cent of the insurers surveyed were Australian and they do seem to be slightly behind their global counterparts when it comes to commencing and implementing their transition to the requirements of the new standard,” he said.
“IFRS 17 brings in different ways of valuing insurance contracts and assets and so will make profit and loss accounts more volatile – this will primarily arise through the ‘choices’ allowed in the new standard when re-measuring claim liabilities.”
The KPMG survey showed major hurdles remain in making IFRS 17 and IFRS 9 operational, with 90 per cent of insurers foreseeing difficulties in securing sufficient skilled people to do the job and half worried about securing the necessary budget.
Guse said that, ironically, the survey also found that organisations which are furthest along with their projects were feeling the greatest time pressure. However, he said there is a positive side.
Despite the challenges ahead, 97 per cent of the largest insurers surveyed viewed implementing the new IFRS standards as an opportunity to transform their business, with a focus on process optimisation, actuarial process enhancement and system modernisation.
“Ultimately, it is critical for insurers to be alert to evolving matters of interpretation so that the impacts on financial statements can be fully understood and there can be a dialogue with investors about what changes they can expect,” Guse said.
“But two years of parallel running is definitely preferable, and not many insurers look like achieving that.”