There has been a lot of buzz in the insurance industry about the new international accounting standards for insurance contracts introduced in May 2017 by the International Accounting Standards Board – the IFRS 17.
Superseding the IFRS 4, the new standards will affect how insurance policies and contracts are assessed.
Currently, contracts are rated only using data available at the beginning of their lifespan. Under IFRS 17, insurance contacts will be evaluated based on future cash flows, calculated using probability-weighted risks and estimates. This is expected to bring more comparability and transparency to the insurance industry – especially with regard to insurance contracts, profit sources and quality of earnings.
IFRS 17 supersedes IFRS 4 Insurance Contracts and related interpretations and is effective for periods beginning on or after 1 January 2021, with earlier adoption permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have also been applied. Therefore, if you haven’t already jumped on board, it’s important to understand the impacts they will have on your processes, IT infrastructure and staffing needs as early as possible.
For employers, it sets the challenge of attracting talented people who are well-trained in these new standards. For candidates, it’s an opportunity to upskill in a high-demand area with excellent salary prospects.
Here’s how the transition to IFRS 17 is likely to impact the recruitment process over the next few years.
Technical and soft skills
The transition to IFRS 17 will be a test of balancing business transformation alongside the daily reality of running a business. To meet these challenges, organisations will need finance and accounting professionals who can think strategically and are skilled in business, leadership, communication, financial modelling, KPIs, and statistical analysis. It means that insurance firms will be particularly keen on professionals who can bring the right combination of technical skills and soft skills to be effective business partners.
Successfully aligning with the new insurance accounting standards will demand strong analytical and adaptability skills. The transition will be particularly challenging in Hong Kong due to the high diversity of its insurance market, which ranges from small companies to global players with offices in the US and Europe. Changes to processes and systems will need to be coordinated across different cultures, languages, time zones, markets, and regulatory frameworks. This will require that firms place strong emphasis on soft skills, such as multiple languages, cultural competence and adaptability, when searching for the right talent.
Life and non-life insurance experience
Because they tend to have a long lifespan, life insurance contracts will be highly impacted by the changes. Insurance organisations will need accounting professionals who can calculate how cash flows emerge from contracts over their lifetime, and can measure predicted profits in a new contractual service margin (CSM). For insurance contracts that last one year or less, there are simplified IFRS 17 rules that apply that, while still challenging, will make for an easier transition.
Breaking down of silos
The new IFRS standards recognize that the impacts of digital technology and globalisation mean that no business can continue operating in silos. It is expected that finance, IT, actuarial, and regulatory teams will all need to contribute towards the transition to IFRS 17. This will require a collaborative approach, along with in-depth gap analysis. It means that insurance firms may need to widen their talent search beyond the accounting/finance bubble, and seek out professionals with excellent cross-team communication skills.
Technology and automation
Many insurers will require new data, processes and systems to comply with the new standards. This includes systems used for data collection, actuarial projections, and calculating and accruing interest. Significant reviews of IT operations will be required to adapt to the new financial architecture created by the IFRS 17 changes.
It will also be an opportunity for insurance firms to go beyond basic compliance and achieve operational excellence – for example, by using new technology such as the Internet of Things or predictive analytics to tailor their policies. These projects will require people who have not just great technical aptitude, but are skilled in training and support to help other insurance professionals transition to the new systems.
IFRS 17 also offers numerous opportunities for insurers to streamline and simplify their services. The earlier insurers address the changes, the sooner they’ll enjoy such benefits. To realise this goal, insurance firms will need professionals who are skilled in areas such as process auditing, workflow analysis, and workflow automation.
With IFRS 17, change will be a constant
Between now and January 2021, there’s a good chance that your team will need to grow to handle the extra workload of the IFRS 17 transition. To keep the project on track, insurance firms will need people who are experts in documenting key decisions and knowledge, and capable of training and mentoring new team members as needed.
For hiring managers, IFRS 17 will require finding the right talent with the right technical skills to navigate this new age of insurance contracts – along with the people skills to implement it successfully. Given that the global applicability of the new standards is likely to result in a global talent shortage, employers must prepare to widen the scope of their hiring search to find the right candidates.
For accounting and finance professionals with the right skills, it’s an opportunity to negotiate a high salary with excellent conditions and benefits. However, strong demand won’t necessarily guarantee a top-paying job. To succeed, professionals will need to think beyond the basics of accounting and finance, and work on developing their creative, analytical, communication, leadership and technology skills.