Implementing IFRS 17 will bring pressure on organisations who will have to deliver the change. Roles, responsibilities and organisational governance will change.
Stakeholders will be subject to unwanted changes and pressures. Workers will face a different kind of pressure because people are often resistant to externally imposed change. Senior managers in the business will find their roles and responsibilities changing and their levels of authority and culpability also shifting. Moreover, there will be an increased resource requirement, not just to deliver the change, but in perpetuity.
IFRS 17 will lead to a significantly different operating model requiring an increased actuarial involvement during the close and valuation processes. Actuarial teams often reside separated from their accounting colleagues. The new operating models will in fact put actuaries at the centre of periodic close processes. Such a change will shift organisation dynamics, structure and costs. It will also place many insurers in a position where they have to confront a change in organisation design to cover who owns the financial close process.
Insurers could choose to offset the likely cost escalation triggered by increased actuarial involvement through investing in higher levels of automation and more sophisticated modelling. Both of these will be capital-heavy and required at a time when skills specialists will command a premium between 2019 and 2021. Whichever strategy insurers take, their back offices will become more complex and expensive.
Most insurers will require external support from a range of consultancies in delivering change. Some of the major firms have customisable-off-the-shelf solutions available (such as for example Legerity and Software Alliance), some offer subject-matter expertise and others offer resource back-fill. Most large accounting firms and consultancy firms offer expertise in the accounting and actuarial approaches to the standard. Others, such as Innovation are experts in implementation. There are specialist IT firms that can offer fantastic solutions away from the large traditional vendors too.
The challenge for insurers with suppliers is to secure resources before they become too scarce or too expensive. For example, there are about 65,000 actuaries in the world, but a common view is that IFRS 17 will require equivalent to 100,000. This type of shortage will drive prices up (as happened with Solvency II in Eurpoe). It also indicates the need for smarter processes with higher degrees of automation.
Who should do what?
Deciding what level of external intervention will be required is a key decision in setting the insurer’s delivery strategy. It may be tempting to do the work in-house, but suppliers have been developing processes, calculations, models and even systems for a number of years. If chosen judiciously these will reduce both investment and operational costs.
Implementation options that have impact on people and organisation
The organisation decisions faced by insurers will include:
1. Develop in-house and backfill operational work
2. Develop in-house and don’t backfill operational work
3. Outsource development work and maintain use of staff for operational work
4. Develop in partnership with suppliers and backfill operational work
5. Develop in partnership with suppliers and do not backfill operational work
(a future post will look at these options in more detail)