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At the outset of the COVID-19 pandemic, the primary focus of insurers was their customers. Now because of how the pandemic has radically altered both our economic and health environments, shining the spotlight firmly on safety, insurers have to equally manage the interests of all their stakeholders – shareholders and employees as well as customers.
The pivot has to be towards the evolving challenges of maintaining solvency, ensuring operational resilience and facilitating engagement with regulators and governments to assist with the healthy restart of the economy.
The future ahead
As with many other sectors, the future is uncertain. However, there are three things we do know by standing on the shoulders of those historical giants who have preceded us. To recover and operate in the new ‘next normal’, insurers must ensure that they have:
Where to from here?
As remote working has become the new norm, insurers must carefully consider their best path forward taking in the following considerations to assist with informed strategic decision making.
1. Review current programs and resourcing
The business consequences of COVID-19 mean it is vital that insurers conduct a thorough review of current programs and resourcing. Many insurers will have several projects in flight, for instance on IFRS 17, US or multi GAAP, ledger upgrade and IFRS 9. In recognition of the ‘new world’ and remote working, insurers should:
2. Embrace opportunities to innovate
Working remotely has highlighted the strengths and weaknesses of a sector that has historically been resistant to change. However, thanks to the new frameworks imposed by regulators across the world, such as Solvency II in Europe, LAGIC in Australia, and IFRS 17 worldwide, the insurance sector has demonstrated its ability to adapt to change when needed. In order to navigate the current market uncertainty, insurers will need to ramp up this flexibility as further changes to current business priorities and processes inevitably kick in. Those insurers that embrace opportunities to innovate will be best placed to succeed in the future.
3. Strong Finance and Actuarial functions
Any expert in the market will agree that there are increasing pressures and demands being placed on the finance and actuarial functions of insurers. This trend will remain and is likely to intensify. As such, insurers should explore opportunities to strengthen their finance and actuarial functions with either additional resources or capabilities.
Insurers must ensure they have enough capacity to cope with all the external factors currently affecting their businesses. Their finance functions must be able to produce appropriate numbers at call. As finance and actuarial personnel are pulled into supporting other business needs, there needs to be sufficient capacity to meet the ongoing statutory and regulatory compliance reporting obligations. In addition, insurers must focus on providing meaningful and timely reports in a form that can help management to quickly respond to changing market conditions. This highlights the urgency to embrace more detailed and sophisticated reporting analysis tools to both elucidate and drive future business insights and strategies.
Impact of COVID-19 on IFRS 17 projects
In an evolving market like Australia’s, IFRS 17 will remain a key focus area for insurers over the next two years. Those insurers that had already embarked on the IFRS 17 implementation journey seem to have managed to adjust to the new way of working and successfully reshaped their programs for delivery.
Now is not the time to slam on the brakes. Despite the one-year extension of IFRS 17’s implementation, those insurers that are still setting up their IFRS 17 programs should not hibernate their projects and temporarily freeze their current budgets, however tempting the opportunity to refocus their activities elsewhere may be. Instead of putting their IFRS 17 projects on hold, now is the right opportunity for these insurers to perform various pre-implementation IFRS 17 activities including:
By undertaking these activities now, insurers will ensure they do not fall too far behind on the implementation journey. It will also put them in good stead to accelerate their implementation efforts once their businesses have more clarity on the impact of COVID-19.
The opportunity from COVID-19 is that it has presented insurers with a once in a lifetime chance to focus their attention on finance transformation with momentum driving stakeholder, customer and employee acceptance. Embracing opportunities for improvement and value creation could set the foundations for a new age for insurance.
Kico is a director leading the IFRS 17 campaign from a finance systems standpoint, supporting clients in making the right systems and architectural decisions. With over 20 years’ experience in delivering Finance Transformation Programs across France, Italy, the UK and now Australia.