By Daniel Hunter

Over half of insurers (59%) have started new projects to get to grips with revised accounting standards for insurance contracts and financial instruments, but cost remains a significant factor finds Deloitte, the business advisory firm.

Insurers have been waiting a long time for the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to agree a single global accounting standard for the industry. Although the IASB and the FASB have opted to issue their own separate draft rules for insurance contracts (IFRS 4) and financial instruments (IFRS 9), the guidelines are substantially in place.

In light of this, new research conducted on behalf of Deloitte by the Economist Intelligence Unit paints a varying picture of insurers’ views. It reveals 85% of insurers expect to have completed the work within the expected three-year time line proposed by the IASB, but some see mixed benefits from adopting the standards.

Moreover, many insurers believe the transition will be complex and expensive. Worries over the cost of implementation have dislodged previous concerns over uncertainty, with insurers predicting the average budget to implement the changes to be between $25m - $50m. This compares with last year’s surveyed figure, where over 50% estimated their costs to be less than €10m.

Francesco Nagari, Deloitte global IFRS insurance leader, said: “Insurers believe that implementing the standards will have a large impact on the way that they are structured. This is especially true for integrating risk and financial operations within insurers and making significant changes to IT systems. This is somewhat concerning, given that boardroom understanding of the change remains low. There are sweeping changes coming, yet our research indicates less than one-third of boards are highly aware.”

Despite these challenges, this research shows that a majority in the industry would like to see a common global standard for insurance accounting.

Nagari added: “Since the IASB and the FASB have issued their own proposed rules for accounting for both insurance contracts and financial instruments, it looks as though the industry will be denied the ‘holy grail’ of truly global standards. The industry would still like this goal to be achieved, even if it means reaching a compromise.

“Industry professionals have long complained the old rules made valuing insurance businesses difficult. By having the new standards, shareholders will be given a better picture of the business upon which to make their investment decisions. This should hopefully make comparability between organisations easier and financial statements should be more meaningful for investors.”

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