Pre the COVID-19 pandemic the insurance industry was already dealing with large-scale regulatory changes, implementing IFRS 17, and repositioning insurers for changing customer needs. The added complexity of the pandemic has certainly not helped the sleeping patterns of insurance executives. Whilst the economic strain of the pandemic is clear to see, there are some positives amongst the doom and gloom if you know where to look.
It has barely been two years since the insurance industry saw the introduction of the Twin Peaks regulatory architecture aimed at maintaining the stability of the financial system and market conduct. Customer and technology demands are changing the landscape forcing insurers to be innovative and leave behind legacy systems. The issuance of IFRS 17 by the International Accounting Standards Board (IASB) brings material change to how insurers account for insurance contracts. The outbreak of COVID-19 in early 2020 just added some more spice.
The global pandemic has left its mark on the South African economy and, in turn, on the insurance industry. We have seen increased policy lapses and claims as well as a severe disruption to new business flows. The insurance landscape has changed, introducing all sorts of issues previously not even on the radar. That said, could the pandemic perhaps be the catalyst needed for transformation in an industry often accused of being slow to respond to changes? Albert Einstein once said: ‘In the middle of difficulty lies opportunity.’
In the period of lockdown, the South African insurance industry has shown that it was still able to service clients, often remotely.
Encouragingly insurers have also accelerated decisions and roll-out plans around digital distribution. The greater acceptance by clients, intermediaries and insurers of digital distribution and service models creates opportunities for access to new markets and more cost-effective operating models. And it is here that I believe that the IFRS 17 and COVID-19 stories meet each other.
Whilst IFRS 17 is ‘only’ an accounting standard, those responsible for implementing the standard often find that the resulting debits and credits are less troublesome than obtaining and storing the data needed. Similarly, insurers need more granular and reliable data to leverage artificial intelligence and cognitive technologies to enhance its capabilities in areas such as personalised advice and dynamic pricing.
The data needed for IFRS 17 is often not dissimilar to what an insurer needs to segment and better understand its current and future client base for business purposes. Call me an accountant dreamer, but the better the data an insurer has for its IFRS 17 reporting, the better data it has to service and sell to its customers digitally. The inverse is also true.
Insurers should ensure that operational management teams and accountants compare notes on their data journey. Working collaboratively using the same data sources and storage formats could save costs but also improve reporting and decision-making. The IASB’s recent deferral of IFRS 17 to financial years commencing on or after 1 January 2023 creates breathing space for insurers to re-look at their IFRS 17 data designs. Insurers should ensure that there is sufficient alignment between all data sources in the business.
A transformation to a more agile and digital insurance industry is well underway. Management teams have also learned from the COVID 19-process and are readying themselves to respond more swiftly to future systemic events. The industry actions through enhancing benefits, participating in CSI initiatives and leniency when collecting premiums have helped maintain the trust between insurers and their policyholders. If one looks past the carnage caused by COVID-19 to the current year financial results, there is definitely a silver lining around the dark cloud hanging over the insurance industry.
AUTHOR | Marivha Nomfundo, Partner: Financial Institutions Services Team and member of SAICA IPG
