The new insurance contract standard, IFRS17, was initiated to increase transparency and reduce diversity in the accounting of insurance contracts. It is incurring massive changes for Hong Kong insurers with their systems and products as well as how they approach reporting processes.
It appears to be proving quite a challenge, due to the popular consensus that it is undeniably complex, and some elements are yet to be finalised, but it requires a huge amount of investment.
It is currently planned to come into effect for annual periods after the 1st January 2021. However, this could realistically be deferred to 2022. It will involve actuarial and finance teams having to effectively work closer together, closing the gap between these historically parted functions within a business.
What barriers are companies in Hong Kong coming up against with IFRS17?
Hong Kong is home to the global headquarters of some of the largest insurance groups in Asia; it is such a developed market of global players. This unique position can make implementing IFRS17 rather difficult and intricate. Such a wide presence with multiple locations will mean that the HQ in Hong Kong needs to co-ordinate changes across multiple languages, time zones and markets.
As it currently stands there is a lot of freedom in the current IFRS and can be accounted for the fact that investors cannot compare insurance companies easily.
The sheer complexity of IFRS17 is proving to be a difficulty for some. Lars Nielsen, Hong Kong insurance leader at PwC has stated: “Reading it is one thing, but I can tell you the biggest challenge is trying to implement it. That’s where a lot of the complexity comes out, when you actually try applying some of these concepts.”
Surprisingly (or not so surprising) it is actuaries that are taking on the bulk of responsibility for this transition and making the role their own. Senior finance roles are passing to them and it is driving a dispute of interests between finance and actuarial teams as their expectations are very different.
High demand for blended talent
Leading up to the implementation of IFRS17, companies need to ensure that they have the right KPI’s and data in place, as well as the right technology and talent. However, finding this talent can be difficult. Regulatory changes in Hong Kong, Singapore, Korea and Thailand are all causing a battle for insurance specialists with the ability to manage the changes that IFRS17 is bringing.
Although an expected approach would be to recruit talent from overseas this may not work with regards to IFRS17 as it is an initiative that requires a rare and diverse blend of skillsets. It is crucial that candidates expand their technical / financial skill sets, including being knowledgeable on IFRS17, so they will put themselves in high demand for new opportunities.
For those companies that want to utilise their work force; do you train those currently in the company on IFRS17? Move employees into a new position to purely focus on the transition? Backfill their roles? What happens when the project of implementation that is IFRS17 ends – it won’t last forever and once it is implemented then that’s that!
Bigger companies will have more capital to use towards this transition, but it is required of all companies in the sector to be ready in time. For the chance to discuss this more and ensure you are on track, please do not hesitate to get in touch.