COVER spoke to James Ingram, senior director at Moody’s Analytics, about the challenges facing insurers and the solutions available.
TONY: Many African insurers are working with you and your team to get ready for IFRS 17. From your experience so far, what is the status of adoption in Africa and the readiness of insurance in the region?
James: It’s a tale of two stories. According to what we’ve tracked internally, in South Africa, around half of the insurers have gotten started, with the remainder yet to decide on a solution for addressing the IFRS 17 reporting requirements. Outside of South Africa, the story really is different. Some of the larger insurers have appointed advisors and started the process of exploring their options. They may have completed their gap analyses, but we have not seen anyone really embark on their project so far. In South Africa, we saw that the first insurers begin the process back in 2019. However, the more commonplace reality is a delay, owing initially to the IASB’s extension of the deadline, and then the impact caused by the pandemic.
As a result, we are looking at the real possibility that many insurers across the continent may have a limited period for parallel running. What we saw was that the early movers, at least in South Africa, would have had the option of choosing between either in-house system builds or third-party software. However, for those that remain, the choice really is whether to pick an off-the-shelf solution, or perhaps a managed service. Practically speaking, whether people have realized it or not, the complexity of the standard means that an Excel spreadsheet is not going to cut it. Finally, and this may sound surprising, we come across numerous examples where IFRS 17 project budgets have not even been secured, despite the limited time remaining before parallel runs.
Tony: That’s normally what happens with these big regulatory changes where people almost wait until the platform is burning before they do something. Do you see any specific challenges that insurers will face with IFRS 17 implementation?
James: Having now worked with insurers in their implementation since late 2018, I know that these challenges are encountered regardless of the size, where an insurer is located, or the business that they write. If I can summarize at the highest level, you can argue that it boils down to two key challenges: resourcing and expertise. The standard itself requires interpretation, which calls for accounting expertise together with actuarial insight. If you have tackled IFRS 17, either as a standalone actuarial or standalone financial project, you missed the much broader significance of the standard. Both stakeholders need to have equal input into the approach taken and this could be aided by a third, the technologists. There is a skill shortage everywhere, not just here in Africa, with respect to the expertise that comprehends all three facets. Now, many people will turn to consultants that can help fill the knowledge gap but by now many of the best are going to be tied to ongoing projects. So if we are saying that actuaries and accountants need to be equal players, in reality this is often simply not the case and, as a result, you can run into a lot of problems.
The fact that some insurer’s approach is very much a CFO bias, while others leave it to their actuarial function, proves that. There is a strong indication that success of
the project is therefore contingent on equitable influence from both sides. You have this pressure on resources, and with a shallow pool of expertise that understands all the various facets, there is a demand on resources. All this is further exacerbated by the competition for priorities and prioritization caused by COVID-19. Then another thing we see is that, until you get into the weeds of a project, the size and the complexity of the task is not always clear, especially on the data side. We are pleased to say that a number of our clients are now producing results. But again, this is not the case for many others in the market. Then there is the scarcest resource, which is time. Interestingly, we had a project lead at our client OUTsurance, one of half a dozen Moody’s Analytics IFRS 17 clients in South Africa, who said during a webcast last year that even though they began their project back in 2019, they wished that they had started much sooner, given the myriad of internal and external challenges they have encountered.
Tony: Insurers will now have to start gearing up to run their parallel runs to meet the 2023 deadline. From your perspective, your experience and that of Moody’s
Analytics, are there any key recommendations that you can provide as a starting point, to help them fast track the implementations?
James: I guess top of the list is not to wait for everything to be ready before starting your implementation project. We recommend a sprint-based approach to implement the standard. Because based on what you find, depending on the products and portfolios, there may be different levels of readiness in terms of data availability, methodology, choices, and so on. It is much better to run an iterative approach and obtain results early in the process. Spend too much time upfront on gap analyses and impact assessments before starting, and you may find it’s not the best use of the remaining time you have left to meet the requirements.
“Many insurers started their IFRS 17 journey a couple of years ago. Whether within the continent or outside, these insurers are now well advanced in their implementation and, from what we’ve seen, are ready to share the lessons they’ve learned, the challenges that they faced, and the successes that they’ve achieved with their peers.”
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Second, I would say, use your software selection process to fast-track your implementation. What I mean by that is—take proof of concept, for example—it gives you not only a high-level understanding of the solution, but it gives you the ability to start training your project team, using the solution, and gaining insights about the data requirements. This will help you identify potential gaps in your existing systems. We also suggest that configuration-based approaches will save a lot of time over toolkit approaches since they avoid the need for coding and will require far fewer resources to carry on the implementation project. Finally, I would strongly urge you to consider asking around for feedback. Many insurers started their IFRS 17 journey a couple of years ago. Whether within the continent or outside, these insurers are now well advanced in their implementation and, from what we’ve seen, are ready to share the lessons they’ve learned, the challenges that they faced and the successes that they’ve achieved with their peers.
This is an industry that is learning as it goes along. We have a community of users that have helped educate and learn from one another. It has proved valuable to
give people confidence that they are not alone. When they are approaching a challenge, trying to interpret a problem and how to resolve it, they can speak with
others who are facing that same challenge in a similar business. Ask around, be clear on whether you want to pick an approach that allows you to configure something that is already prebuilt, and think about starting your implementation as quickly as possible.
Tony: So then finally, from a Moody’s Analytics perspective, how are the Moody’s Analytics solutions that you’ve got for IFRS 17 helping African insurers transition to this new standard?
James: Moody’s Analytics took the decision to design a purpose-built solution for IFRS 17, acknowledging that both actuarial and accounting components demanded
equivalent levels of focus. Our premise here is that, unless you take this approach, you risk ending up either with a bolted-on CSM engine, sub-ledger, or reporting
interface that fails to meet the needs of its user group. This approach has the added advantage of allowing us to develop using the latest technology, which then facilitates integration and helps keep implementation light, instead of building on legacy technology that will likely require re-platforming within a short timeframe as business needs evolve.
The South African insurance market is a strategic focus of Moody’s Analytics. We have invested heavily to become the provider of choice for IFRS 17 and we are committed to bringing our clients success through our purpose-built platform. We do this in many different ways. First, our solution is out of the box, but is configurable. This addresses, in a single platform, all actuarial and accounting challenges raised by the standard. Our implementation approach is light, and we can have clients up and running their own data within weeks, rather than waiting months.
This addresses a critical market concern, as demonstrated by a recent PwC IFRS 17 survey of South African insurers. Link https://www.pwc.co.za/en/assets/
In that survey, 50% of respondents flagged, as their biggest concern, the integration of technology solutions. Having a light implementation is critical, especially given the remaining time that insurers have. Another thing that we have done is introduce project accelerators to enhance integration, by reducing the data preparation required. It allows the project teams to focus on the business side of IFRS 17, rather than getting data ready. We also offer extensive training to transfer knowledge to our clients and empower their users.
This gives greater independence and reduces reliance on consultants and the providers themselves, and, as you may figure out, it will help reduce costs. Finally,
our software-as-a-service (SaaS) model accelerates deployment while reducing the cost and maintenance required for upgrades, which allows greater visibility and
control of downstream budgets.
In summary, it is our ability to quickly produce results, readily satisfy proofs of concept, and reference client successes that creates trust in the insurance market.
These are a few of the reasons why Moody’s Analytics has been chosen for IFRS 17 by more than 60 insurers worldwide.