The proposed standards will undoubtedly introduce more volatility to equity and the profit or loss account and there is no question that an insurers’ financial statements would look very different compared to today. Insurers would be likely to feel the consequences throughout their organizations. If insurers start planning now, the wave of change could open up opportunities for synergies in areas such as data collection, modelling capability and investment in systems and resources.
Insurance Accounting Change Today
The issuance of the IASB’s new accounting proposals marks a major step towards implementing a common insurance reporting framework across much of the world. The debate has run for more than 15 years and the conclusion of the insurance project is now in sight. KPMG professionals are working with a number of their firms’ clients to assess their strategies towards Insurance Accounting Change and its impact. We have found that there are alternative approaches that insurers might consider depending on where they are in their planning as illustrated in the spectrum below.
- Keep informed as to the development of final standards
- Comment on proposals
- Keep the business informed of changes
- Educate the board, audit committee and senior management
- Set expectations around timing and cost of implementation
- Identify benefits as well as costs
- Secure budget for change
- Consider the coming changes when planning updates to process
- Aim to "future-proof" processes in preparation for the changes
- Incorporate future accounting and regulatory changes into IT system development
- Understand your capability to respond when the final standard arrives:
- Can my systems handle the coming change?
- Who in the business needs to be engaged?
- What resources are needed for the transition and or business as usual?
- When and what should I tell investors/analysts?
- Begin an impact assessment, starting with those areas that are unlikely to change, focus on what it will mean for products, distribution systems, data and modeling
- Begin preliminary work on developing an understanding of information needs, resource requirements and modeling needs for future planning
Consider the following questions to assess your next steps:
- Are you in a complex global organization or one with multiple lines of business?
- Is your company undergoing strategic changes, such as M&A activity, which may increase the complexity of legal structures, accounting bases or operating models?
- Do you see your company as wanting to influence the standard setting process?
- Are you concerned that your existing financial systems are sub-optimal? Alternatively are you updating your current systems and do you need to consider the future accounting standards in the specification?
- Do you see significant risk for your organization or expected volatility arising as a result of the new standards – do you need to start managing internal and external stakeholder expectations sooner rather than later?
- Do you anticipate that the combination of the above factors is likely to cause a large strain on your internal resources, most likely with subsequent skills gaps?
By preparing now you will:
- Gain a better understanding of likely volatility, therefore being more prepared to respond to, and mitigate risk.
- Give meaningful, informed comments and guidance to the board and provide management and stakeholders with enough time to prepare.
- Gain competitive advantage by taking this opportunity to, examine legacy systems to see if they are sufficient to support future business needs; analyze the finance function and correct system issues and simplify processes and controls; increase transparency.