Choosing the right solution for IFRS 17

Choosing the right solution for IFRS 17 is crucial for Insurers wanting to capitalise on the benefits of InsurTech

June 8th, 2019

Technical innovation is driving significant change for the insurance industry, in areas ranging from customer experience, AI, chatbots and machine learning, through to leveraging Cloud computing. Combined with the need to respond to new regulatory challenges, such as IFRS 17, it is clear that now is the time to dramatically reengineer not only the back office but also the front office.

In recent years there has been a flood of new regulation across most industries, with the insurance sector particularly affected. Solvency II had an enormous impact and now IFRS 17 is underway. It’s not only IFRS 17 that affects insurers. They have also been affected by IFRS 15 for revenue recognition, IFRS 9 for financial instruments and IFRS 16 for lease accounting and in the USA life insurers are working through LDTI changes.

If you focus on IFRS 17 compliance, combined with future proofing your organisation, then it’s important to introduce an architecture that meets existing business needs and the new standards, but also considers future challenges. The insurance sector is embarking upon one of the biggest changes it has ever faced in the back-office. New accounting standards combined with the need to innovate, will place significant demands across the whole organisation.

One reason insurers are dependent upon legacy systems is due to the difficulties associated with introducing change. Transforming the insurance sector is virtually impossible whilst running existing business and therefore, a non-disruptive, evolutionary approach is advisable from a technical perspective.

Back office technology within the insurance sector has remained unchanged for many years, with batch-based processes currently feeding high data volumes from policy administration and actuarial based systems, through to the General Ledger. Future innovation and InsurTech requires fast-moving real-time data, therefore, moving the back-office from a traditional, historic, batch basis operating model to real time, fast processing is an important consideration.

Front office innovation needs to be supported by the back office. How should insurance contracts be delivered? Blockchain? How is that dealt with in the back office? How are crypto currencies handled? How is the Internet of Things dealt with in terms of real-time telematics? All those questions need to be factored in when looking at future state architecture, and need to be considered over and above IFRS 17, to ensure that the solutions implemented today are able to meet future demands.

The wave of regulatory change has had a wide-ranging impact, particularly concerning data, actuarial model performance and information processing methods of insurers. Increased volumes and more complex calculations have had an effect on the accounting ecosystem and ultimately reporting, which has become more onerous following the regulatory changes.

Given the monetary cost, complexity and time required, it’s easy to regard regulatory change as a burden. However, regulatory change will benefit policyholders (in terms of security of the insurance industry) and shareholders (transparency of information and understanding company performance). From the firm’s perspective, the benefits are not quite so obvious.

IFRS 17 has provided the opportunity to invest in new finance systems and encouraged the need for transformation. With regulatory change, the best place to start is to consider the data requirements. Data in the insurance industry is often inaccessible, residing in silo-based systems. The data may not be effectively harnessed and there may be quality and availability issues. Regulatory change has exposed and emphasised these data issues and this in turn has driven insurers to start building a more robust technical infrastructure.

The opportunity afforded by new technology to transform finance, requires high quality data. Regulatory change provides the opportunity to lift the lid and address some of those crucial data issues. Insurers are generally constrained by legacy operating models, which impact data quality, actuarial tools and operational processes.

Regulatory compliance requires complex calculations, which rely upon high volumes of granular information. Clunky, old-fashioned mainframe computers and proprietary database systems need to be replaced. Insurance firms have historically relied heavily upon Excel spreadsheets, Access databases and manual processes which are no longer feasible. In order to comply with the regulators and future proof the organisation, insurers need to automate processes. Back office automation investment will enable the deployment of new front office systems leading to the delivery of valuable information concerning business performance.

Automated processing can transform the back-office into less of a data management, calculation entity, delivering more insightful information to ensure front office investment pays off. Regulatory change can therefore be seen as an opportunity to invest in the back office, in areas such as cloud computing, in-memory processing and high-tech, super-fast technology that can crunch huge data volumes which support front office transformation. Regulatory change will not directly help insurers however investment incurred as part of a regulatory change programme can support the long-term digital transformation journey.

One barrier to change is the lack of time available to achieve a comprehensive transformation program. Even allowing for the one-year IFRS 17 delay, most insurers will only be able to achieve a compliance plus approach, putting a technical backbone as a foundation for future transformation. This means they will not necessarily achieve all the benefits immediately but will put the foundations in place for future enhancement.

Another significant barrier relates to the availability of funding. It’s important to consider the overall business case so that when program sponsors raise these topics with the Board and executive committees, they should look beyond simple compliance. They need to factor into the business case the cost of making an incorrect choice, choosing technology that may constrain the organisation in the future. It is essential that insurance companies invest in up to date technology which has a viable long-term future.

Of course, major change is not without risk. One option is to meet compliance needs whilst deciding upon a long-term roadmap. Timing is crucial as IFRS 17 compliance must be in place by January 2021, in order to allow for a year of parallel running and go-live in 2022. Cloud computing can help deliver the solution in line with the tight deadline. The Cloud provides proven technology and a faster way of testing, UAT, development and production rather than traditional on-premise solutions. It is also highly scalable.

Advances in technology, globalization, innovation and the rise of InsurTech have impacted virtually every part of the Insurance ecosystem. Through the rise of InsurTech, smart contracts are now being delivered via Blockchain. In underwriting there have been dramatic changes in the motor insurance market where telematics has been revolutionary. Traditional underwriting factors such as age, occupation, vehicle value etc. whilst still important are now being replaced by real-time data, that provides insight into driving habits, including cornering, compliance with speed limits, driving times (day or night) and the conditions of the roads being driven on. This is significantly changing the underwriting process and providing insurers with a more accurate insight into the risks associated with individual drivers.

Innovation provided by InsurTech requires a change in back office processes to harness competitive advantage. One solution for insurers is to ensure that IFRS 17 compliance projects interact with InsurTech and innovation departments. This will combine compliance with the future vision for what a digital strategy looks like. If insurers embrace the new technologies now available then they will be able to build a future state architecture that could remain operational for the next 15 to 20 years and will be an enabling platform, as well meeting new regulatory demands.

Insurers that combine regulatory compliance with a forward-looking digital strategy will be well placed to meet future market demands, able to compete with new market entrants and take full advantage of the benefits provided by InsurTech.


ERP Implementation: How to Create the Model Team

ERP Implementation: How to Create the Model Team

January 23rd, 2020

When it comes to ERP deployment, who exactly does what? Read on to discover the skills you’ll need to bring on board for the smoothest possible implementation…

The promise of Enterprise Resource Planning (ERP) software is a compelling one. In an ideal world, the right ERP solution means no more workplace resource decisions made on a hunch. Instead, businesses are able to take a joined-up, data-driven approach to resource planning: one that’s aligned to the organisation’s financial goals, and which takes into account what’s happening on the ground.

95% of businesses benefit from an improvement in their processes after ERP implementation. At 68%, average customer satisfaction levels are also very high. So far, so good: but that’s not to say that deployment and implementation is totally risk-free. After all, this is the type of software that draws on data from all corners of your company, helping to reshape multiple business processes – so there is plenty of scope for potential ‘teething troubles’!

To reap the full benefits of ERP, to keep disruption to a minimum and to ensure buy-in from across the organisation, you need a strategy – and you also need the right people involved. With this in mind, here are the challenges to be aware of, and who to include in your implementation team…

ERP Challenges

Internal hardware limitations

Trying to run next-gen software on underpowered systems is a frustrating experience. Internal networks, servers and other hardware need to be assessed prior to deployment, and updated where necessary. Cloud deployment can be an effective way of mitigating issues associated with limited existing hardware and storage capabilities.

Choice of ERP system

When businesses are asked what they want from a system, ease of use, overall functionality and total cost of ownership tend to top the list of concerns. The ability to customise is also important: especially for functionality relating to manufacturing and logistics, where the modules will ideally need to be adapted to mirror the unique processes you have in place.

Data quality

This is particularly relevant where legacy data is set to be deployed in an ERP system for the first time. You need to ensure the accuracy and integrity of that data, to avoid poor integration and to ensure your people can trust the numbers once the system goes live.

Employee buy-in

Unless staff understand the purpose of the new system, it can be difficult to convince them to put it to work. Clearer inventory management, more accurate assessment of staffing needs, easier reporting, greater scope for cross-department collaboration: make sure your people are aware of the positive difference ERP is going to make.

Meeting the challenge: who to include in your ERP implementation team

Project manager

The project manager defines the steps necessary to execute the ERP implementation and ensures all relevant tasks are covered to keep the project on-time and on-budget.

For this, the PM should have a solid working knowledge of the specific software being put into place. Bear in mind that your new ERP system will be effectively integrating all departments of the business, from production and quality control through to HR. The role therefore demands a thorough understanding of how these departments operate, how information flows between them (understanding the personalities involved helps, too!).

Data engineer

Prior to migration, data engineering input is likely to be required for the purposes of data cleansing, including the removal of suspect records and reformatting where required.

Data analyst

An analyst should have a leading role in testing the ERP layout to ensure the system meets your organisation’s specific needs. This person should also be well placed to make recommendations for optimal configuration and (where necessary), system customisation.

Post-deployment, your head analyst should regularly assess the effectiveness of the system and advise on optimisation. Liaising with stakeholders is essential here: your analyst should check in regularly with users from other departments to ensure your new ERP is continuing to meet the needs of people on the ground.

Application developer

The typical ERP system tends to come with A LOT of configuration options: just one of the reasons why detailed knowledge of the product is necessary to get the most from it.

That said, to ensure it matches your unique processes, you may need to go beyond system configuration and actually build in additional functionality.

Time to partner up…

You would never settle on an actual ERP package without giving careful consideration to your options. Likewise, your choice of implementation partner is crucial, too – not least, because of the product-specific knowledge demanded to make the project a success.

To help you choose wisely, we’d suggest asking yourself the following questions:

  • Does the consultancy have experience in deploying the full range of market-leading ERP packages – or are they tied to a particular vendor?
  • Are they able to understand our business and grasp our way of doing things?
  • Can they advise on configuration – and assist with customisation where necessary?
  • Is there a well-worked installation plan, including help with data cleansing – to ensure minimal business disruption?
  • Is there role-specific training available to ensure end-users get up to speed as swiftly as possible?

Are you considering a first-time ERP implementation – or looking to update your existing system? Are you weighing up different packages? Need help with filling skills gaps? For a no-obligation chat about any aspect of ERP, speak to Millennium Consulting today.


Is tech hiring about to get harder?

IR35 and the private sector: Is tech hiring about to get harder?

January 23rd, 2020

From April 2020, the government’s revised off-payroll working legislation (IR35) will apply to the private sector. By making the fee payer responsible for determining a worker’s employment status, these new rules represent a significant shift in liability from contractor to hirer. Already, a succession of big-name enterprises have phased out limited company contractors in favour of permanent hires. So should your business take a similar approach?

Here’s a closer look at what’s changed, and at what this means for your wider hiring strategy.

IR35: the new private sector rules

IR35 is HMRC’s answer to the perceived problem of “disguised employment”: arrangements akin to employment where workers bill for their services through an intermediary (usually their own personal services company) purely as a means of reducing their tax and NI liability. If the arrangement falls within IR35, HMRC will tax it along the same lines as a standard employment relationship.

In 2017, the IR35 rules covering the public sector were changed to shift two key responsibilities from the worker to the hirer. From 6 April 2020, similar rules will apply to the private sector.

Here are the two main changes:

  • Previously, contractors were required to determine and declare their own IR35 status. From April, this status determination becomes the responsibility of the organisation using the worker’s service (the ‘end user’).
  • If the arrangement falls within IR35, the organisation responsible for paying for the worker’s service (the ‘fee payer’) is responsible for calculating and deducting tax and NI through PAYE. The end user and fee payer will usually be the same party; one notable exception being agency hires where the agency is responsible for paying the worker’s fees.

Does the rule change apply to my company?

The new rules apply to medium and large employers, defined as follows:

Unincorporated bodies with a turnover of more than £10.2m.

Incorporated bodies (companies, LLPs, unregistered or overseas companies) where two of the following apply:

  • Annual turnover of more than £10.2m
  • Balance sheet total of more than £5.1m
  • More than 50 employees.

Where a parent company meets the threshold, the new rules will also apply to all subsidiaries.

Your recruitment model: questions to ask

If you currently engage meaningful numbers of contractors, now is the time to review both your existing arrangements and your wider hiring practices.

For some businesses, the nuclear approach may seem tempting: to bring all existing independent contractor arrangements to an end and offer to re-engage those contractors as permanent or fixed-term employees. This means automatically taking a hit in terms of employers’ NI, but it side-steps the need to evaluate the IR35 status of each and every contractor, and removes the risk of sleepwalking into non-compliance.

But does calling time on contractors actually make sense from a business perspective? Especially when it comes to bringing tech talent on board, the contract model is often a natural fit: it provides vital support for project delivery, it equips businesses to deal with fluctuations in demand, and helps to plug skills gaps – often at short notice. Rather than jettisoning the contract model completely, organisations should ask the following questions:

  • Which roles is there a business case for bringing in-house?
  • When, and under what circumstances is there a business case for hiring independent contractors?
  • For those contractors, how do we construct the arrangement to avoid IR35 liability?

Permanent recruitment: time to take stock

GlaxoSmithKline, IBM, Lloyds Bank, HSBC and Barclays have all opted to phase out the use of contractors operating through personal service companies, mostly offering to re-engage existing contractors on PAYE terms.

The bigger the organisation, the greater the likelihood of being able to take this type of blanket approach. As well as being able to absorb the cost of adding large numbers of staff to payroll, the typical multinational tends to have considerable leverage in the recruitment market – so, isolated gripes aside, persuading contractors to stay is less likely to be an issue.

But let’s say you are head of HR at a software house with 50+ permanent staff already, and a similar number of PSC contractors. Compared to a bluechip, the financial implications of adding large numbers of extra people to payroll at a stroke are likely to be much more significant. As an alternative, this may be a prime opportunity to take a wider view of your staffing strategy, review your operating model, to assess what skills you need to drive the business forward and to cut back on overlapping roles.

Will it be harder to recruit and retain after April?

In a word, probably: especially if you are forcing current workers and new hires to accept a status determination they are unhappy with.

Switching contractors to PAYE can reduce their income by as much as 25%. For one thing, salaries are taxed at a higher percentage rate than dividend payments through a PSC. They will also likely find themselves out of pocket for many of the expenses they were previously claiming.

On top of the financial benefits of operating through a PSC, many workers also appreciate the freedom and flexibility that the model offers. Try to force them onto payroll and they may be inclined to walk away. For instance, one survey suggests that 59% of contractors would consider working for someone else if they found themselves caught within IR35 in their current role.

Particularly in specialist, in-demand areas such as data science and AI, firms are going to have to balance HMRC compliance, the needs of the business and the commercial realities of the recruitment market.

For example, let’s say you have assessed your star data engineer’s existing contract as falling within IR35 and they are uncomfortable about the idea of being added to your firm’s payroll. If money is the main bugbear, is there scope for negotiating a higher rate? Alternatively, could you formulate the new, salaried role so it better aligns with this contractor’s career goals? Good communication is essential here: only when you understand a contractor’s specific concerns about their employment status can you start to address them.

Accessing the right help

It’s important to remember that IR35 was never meant to eliminate bona fide contract arrangements. It is possible to continue to engage contractors through intermediaries and keep the arrangement outside of IR35, provided that you keep the contractor effectively at arm’s length from your organisation, allow that contractor control over their working processes, ideally provide a right of substitution and do not insist on exclusivity.

Do you need help in formulating contractor roles to stay outside of the scope of IR35? Need a tried-and-tested way to access permanent/temporary staff in the fields of AI and data science? Speak to Millennium Consulting today.


The key to technology implementation success

Committed and effective sponsorship; the key to technology implementation success

January 8th, 2020

When an organisation starts a new initiative or program it’s essential there is an influential sponsor or backer available to play an active part, provide support, promote the initiative and assign the resources needed to ensure it’s a success. But who would want to be a project sponsor as when things go well they rarely receive the credit and recognition they deserve? However, if things don’t go according to plan then the finger of blame is normally pointed in their direction and they typically pay the price and their career may be adversely impacted.

The role of backer or sponsor is crucial and without someone committed to running the program and being actively involved then it runs the risk of failure. Technology change programs in particular, require a Senior Executive to be responsible for ensuring they are successful. The Project Sponsor will normally be a senior Executive from within the organisation, often at or just below Board level who will actively drive the program and provide the link between the delivery team and the Board of Directors. They will need to possess authority and influencing powers to promote the change to the wider organisation, ensure the delivery team has the financial and personnel resources needed and that the necessary controls are in place to ensure it is delivered successfully within the planned timescales and budget.

Large scale change programs may encounter resistance, so the Sponsor needs to ensure there is buy-in and acceptance within the organisation. Strong communication skills and the ability to influence are vital because even with the best business case, resistance to change can lead to project failure. The PS will need to lead the change and support the project manager and their team navigating the organisation’s political terrain. They will provide high level project backing, act as an escalation route for the Project Manager, arbitrate/resolve conflicts should they arise and communicate project closure and the outcome to the organisation,

Their responsibilities include; preparing the project brief and the Project Initiation Document (PID); appraising technology options and submitting them to the Board of Directors for approval; ensuring an appropriate project or programme management framework is in place e.g. Prince 2, Agile, Waterfall etc; securing internal project resources and external expertise as necessary; arranging and chairing regular Project Steering Board meetings; liaising with affected department stake holders; determining and managing project risk; controlling the budget including allowing for contingent risk; co-ordinating and fostering a project team ethos; evaluating the performance of the project manager; establishing a formal project reporting structure; defining project control and management criteria; supporting the project manager with problem resolution and reviewing project update reports.

The Project Sponsor will act as a single point of contact with the project manager for the day-to-day management in the interests of the organisation. They will need to have sufficient knowledge of the organisation and the program to make informed strategic and operational decisions. The Sponsor should be able to apply quality management principles and processes; apply risk assessment and management principles and processes; network effectively; negotiate effectively and apply influence; broker relationships with key stakeholders within and outside the project; be aware of the broader perspective and how external factors may impact the project.

Project sponsorship is not a spectator sport and it is essential that the Sponsor is actively involved and committed to the successful delivery of the project. They should have the authority to make the majority of the key decisions and will act as project champion to ensure the expected outcome is delivered. With a strong effective Project Sponsor in post then there is every likelihood that the change program will be a success.

For more information regarding Project Sponsorship, please call us on +44(0) 845 604 4262 or contact us using our website form.


Selecting and successfully implementing ERP software

Selecting and successfully implementing ERP software

January 3rd, 2020

Enterprise Resource Planning (ERP) software has progressed a long way in recent years with digital, cloud and artificial intelligence solutions entering the market and competing with traditional on-premise offerings. Emerging technologies together with corporate growth have fuelled demand for ERP solutions that automate business processes leading to reduced headcount and supporting corporate growth. The appeal of shared services, requirements of enhanced management information and post M&A corporate restructuring are also amongst the reasons why organisations decide to implement new ERP platforms.

Project Sponsor

Introducing new ERP is a considerable challenge requiring strong, effective project sponsorship from either the CFO, CTO or another member of senior management. The sponsor will provide the link between the delivery team and the Board of Directors and will oversee project governance. They will need the authority to promote change, ensure the delivery team has the resources needed and that the necessary controls are in place which will guarantee the project is successfully delivered within the planned timescales and budget.

Large change programs are likely to encounter resistance and a key role of the sponsor is to secure buy-in and support from the impacted parts of the organisation. Strong influencing skills are needed as even with the best business case, resistance to change can risk project failure. The sponsor supports the project manager overcoming political and resourcing challenges, provide high level backing, communicates project closure and the results to the wider organisation. They will also act as an escalation route if needed and arbitrate/resolve any areas of disagreement.

The Project Team

Project teams is typically a mix of software vendor consultants, third party systems integrators and internal personnel. The software vendor will provide in-depth software applications expertise whilst the systems integrator will focus on wider change management issues, new business processes and interfacing with third-party applications. The internal project team will be familiar with the organisation and the legacy business processes and will be able to contribute from an operational/ business perspective.

Software Selection

Having agreed upon the need for a new ERP platform, sufficient time should be given to specifying and selecting the most appropriate software product. In most cases external support will be needed as internal staff are unlikely to have the necessary experience and time available and may not objectively view the available options.

Initially a period of analysis and requirements gathering is needed leading to the production of the Request for Proposal (RFP). A list of potential vendors with products meeting business specifications will be sent the RFP and a short list chosen and vendors requested to demonstrate their products. A proof of concept (POC) may take place to evaluate the software under realistic conditions with authentic dummy data.

Vendors should be assessed not only on the suitability of their software but also on their long-term product road map, financial strength and future viability. Selecting the wrong product can be costly particularly if the vendor is acquired by a third party and their software deemed surplus to requirements and decommissioned.

The cost of implementing new ERP will include new computer hardware, software licences, external consulting fees and time devoted to the project by the internal team.

Existing hardware may be retained but may not have sufficient processing power to operate the new software. Overall implementation costs can be as much as 5 times the software licence fees depending upon configuration and hardware required. Other costs to consider include the effects of disrupting existing business processes and reduced management information whilst the deployment is in progress.

Project Management

Effective project management is essential to determine the scope, quality, budget and timing of the program and may involve the use of Prince, Agile or Waterfall project methodologies. Software vendors and consultancies may prefer their own internally developed project management methodology which will incorporate resource planning and milestone definition to ensure deadlines are achieved and bottle necks avoided.

Target Operating Model

The new ERP solution will be developed in line with a new Target Operating Model (TOM) and a prototype built and tested before the final design is agreed. It is essential that finance employees are involved with the systems design as their buy-in and involvement will contribute to the ultimate success of the project. The system can be built adopting either a standard out of the box approach or with customisation although this will depend upon the complexity of the business requirements and the amount of flexibility needed. Extensive customisation can lead to additional implementation costs and may provide challenges with long term support and future upgrade. User training is needed to ensure the operational knowledge is in place so the system operates effectively. Following the system build process, User Acceptance Training (UAT) and user training will be needed. Once the design is agreed and finalised then data conversion and migration will take place.

A parallel run with the old system may be performed however this can be costly and a Big Bang approach may be preferred in the interests of cost saving. Following “Go live”, support will be needed and a post “Go-live” review carried out to ensure users operate the system correctly and any outstanding performance issues are resolved.

Conclusion

The challenge and likely cost of implementing a new ERP platform should not be underestimated. Successful delivery involves three key areas; People, Processes and Technology. Projects can sometimes focus excessively on technology whilst human aspects of the change program may not be given the attention they deserve. A Change Management strategy and the availability of appropriate skills will help ensure the implementation is accepted and judged a success.

Key issues include; selecting appropriate software; ensuing there is a strong project sponsor and sufficient project governance; engaging delivery focussed project management; ensuring internal staff are fully involved and accept the new system; using the new system to improve business processes rather than simply replicating historic ways of doing things; assembling the most appropriate project team – normally a mix of internal personnel and external consultants and ensuring there is sufficient post go-live support to deal with outstanding issues.

Adopting these strategies will lead to; streamlined business processes; reduced employment cost; enhanced management information; ensuring that the organisation is committed to embracing technology to improve overall corporate performance.

Millennium Consulting has been supporting customers deploy and optimise ERP since the mid 1990’s. This has included selection, architecture, build, deployment, re-engineering and upgrade. Our customers expect the best ERP specialists available and we make it our responsibility to ensure their needs are met. If you would like some guidance on choosing or implementing new ERP software, please call us on +44(0) 845 604 4262 or contact us using our website form.


ETL & Rules Engine Technology

ETL & Rules Engine Technology

September 2nd, 2019

With increased numbers of software applications used by today’s organisation there has been a corresponding growth in the number of “Extract, transform and load” (ETL) software companies capable of extracting data from one or more sources and transferring it to a destination system in a different format from the source system. The increased use of corporate data warehouses has driven demand for ever more powerful ETL technologies able to handle large and disparate data volumes.

Well-designed ETL systems extract data from multiple source systems, enforcing data quality and consistency standards, conforming data so separate sources can be combined and finally delivering data in a presentation-ready format so application developers can build applications and end users can make decisions.

Data extraction takes time and therefore the three phases are often performed in parallel. During the data extraction process, another transformation process takes place while processing the data already received and prepares it for loading while the data loading begins without waiting for the completion of the previous phases.

ETL systems commonly integrate data from multiple applications (systems), typically developed and supported by different vendors or hosted on separate computer hardware. The separate systems containing the original data are frequently managed and operated by different employees.

The introduction and configuration of ETL technologies can be complex. Millennium Consulting bridges the gap between software vendors and clients and help to harness the power of Rules Engines, ETL tools and Data Warehouses to store, process and make best use of corporate data.

Millennium Consulting provides Consultancy and Recruitment services relating to leading Rules Engine and ETL technologies such as Aptitude Software, Legerity, Informatica and Ab Initio. Our customers span the globe with specialist expert consultants across North America, Europe, Asia and Australasia.


How to get the best out of external consultants working on IFRS17 compliance programmes

How to get the best out of external consultants working on IFRS17 compliance programmes

March 1st, 2019

One key area of discussion at the IFRS 17 London event I attended recently concerned the challenges programme leaders face managing external consultants alongside internal IFRS 17 project teams.

Management consultants play an important role in today’s business environment and bring important much needed skills that to ensure overall programme success. The recent trend of insurers moving towards leaner business models means that when regulatory change programs such as IFRS 17 arise, internal resources can become severely stretched. When this is combined with a lack of knowledge concerning IFRS 17 one option is to seek specialist external support.

For project managers, the participation of external consultants within a team can deliver significant benefits but can also cause problems. External consultants provide valuable skills and methodologies that reduce risk, increase speed of delivery and provide innovative solutions to new problems. However, in reality their expected talents do not always meet expectations. Project managers may find consultants hard to manage and the extra cost can have a huge impact on already stretched budgets.

IFRS 17 programmes require certain steps to be taken to maximise the benefits of using external consultants.

Establish a balanced relationship

External consultants require a different management approach compared with internal consultants or full-time team members and it is important to achieve the right balance. Consultants should be carefully managed, although exerting excessive control can strain relationships and adversely affect productivity.

Permanent employees are normally aware of reporting lines and staff seniority but this is not necessarily the case with consultants. You may assume consultants regard you as the “client” and will automatically follow your instructions however in reality, being a client employee is not necessarily the same as being the client and consultants may have differing views of who the client actually is.

Who the client is will depend on multiple factors, but usually the individual responsible for engaging the consultant is considered the client. This is not however always the project manager. Regardless of this, consultants will want to meet the needs of the project manager but will probably regard them as one stakeholder amongst many. Project managers may work with team members who do not regard them as their line manager. However typically they will have skills to enable them to influence people to perform tasks that they might not necessarily have line authority for.

It is important to build trust within the team. It can be challenging to integrate consultants into an existing team, especially if they are being introduced to solve problems that internal team members are unable to deal with on their own. Internal consultants and employees may be concerned about their jobs and reputations which may lead to tension. It is therefore important to communicate to internal staff that the need to engage consultants does not reflect adversely on them. Honesty is the best policy in explaining what the consultant is being brought in to deliver and the lessons that the internal team can learn from the project.

Ensure the consultant knows why they have been engaged

It is essential to clarify the consultants’ role and identify the key deliverables. Make sure everyone involved with the project understands why consultants have been engaged, including the consultants themselves. Ensure they are conscious of any underlying issues that might not have been openly discussed.

If consultants are employed by a third party consultancy firm then they not only have to satisfy client stake holders but also management of the consulting firm. The consulting firm will need to ensure the work performed is of the required quality to avoid the risk that the client will reject it and require remediation which could be non-chargeable. Satisfying internal stakeholders will have a direct impact upon client project delivery; however, a consultant’s career depends on their relationship with their consultancy and not with the end client. It’s worth considering that when a consultant seems reluctant to follow directions it may be because it conflicts with working practices and methodology of their consultancy.

Get consultants productive rapidly

It is important to ensure consultants are productive as soon as possible. Consultants should be able to start producing quickly, however, whilst they may not need as much on-boarding as new employees, they will still require support in getting acquainted with the organisation, the team they’ll be working with and with the details of the IFRS 17 project they will be working on.

What motivates consultants?

Accomplished consultants have four primary motivations. They wish to meet client needs, generate revenue for their consultancy, enhance their personal reputation and create the conditions for further business activity on account of their delivery record.

When a consultant has been engaged on a client site for some time then they may regard themselves as being a member of the client team. It may be assumed that their interests and the clients are the same. Whilst consultants are normally motivated by meeting client needs they are not necessarily there purely for the client’s benefit.

Managing consultants

Managing consultants as part of a project team should be the same as for internal team members. They should be set tasks which they will need to deliver on time and to the required quality. Consultant activity may change as projects progress. The best approach is to communicate regularly with consultants to continually discuss deliverables and expected outcomes.

Consultants need measurable goals, so should be to set SMART (Specific, Measurable, Attainable, Relevant and Timely) targets. These not only clarify expectations, but also allow measurement of progress and performance.

Feedback and monitoring

It is important to provide regular feedback. Consultants need feedback on their performance so they know what they’re doing well and where they should improve. If a consultant is engaged via a consulting firm then it is important to also provide them with feedback. It’s important that the consultancy firm is delivering on the promises they made and they will rely on regular feedback to ensure the statement of work is completed as agreed.

There are significant benefits to be gained by employing an external consultancy as long as they are correctly managed. It provides a simple, fast way to gain access to scarce expertise which in the case of IFRS17 is very much the case. Consultants should have the required skill set and be able to provide instant assistance to clients. They will be focused on project delivery and achieving results in a timely manner.

Millennium Consulting is an established (1995) Finance Technology consulting and resourcing company with almost 25 years experience assigning highly experienced individuals and teams to support insurers with regulatory change programs such as Solvency II, IFRS9 and IFRS 17.

We provide cost-effective, high quality interim support for niche insurance focused finance technologies such as Prophet, MoSes, Aptitude Software, Legerity Software, Tagetik & SAS. We also have extensive experience delivering change in respect of ERP and finance technologies such as SAP, Oracle, PeopleSoft, SunSystems and Unit4 Financials (previously Coda).

To find out how we can provide support with your IFRS17 compliance program contact Brendan Shaw, at brendan.shaw@millenniumconsulting.co.uk.


The IFRS 17 challenge (and opportunity) ahead for insurers

The IFRS 17 challenge (and opportunity) ahead for insurers

January 1st, 2019

From 1st January, 2021, insurance companies will have to apply a new accounting standard, known as International Financial Reporting Standard 17 (IFRS 17), which will change the way revenue and profits are recognised for insurance contracts. IFRS 17 represents the most significant change to insurance accounting requirements in 20 years. Where previously each regional market disclosed financial reporting figures in their own way, from 2021 regulators will be able to compare the outputs of an insurance company in UK, with any other insurer in the world. The harmonised system demands a complete overhaul of insurers’ financial statements and will come at a cost to insurance companies. This will be a complex compliance project to the deadline date.

It’s an impactful change for insurers affecting many areas from actuarial models, accounting systems, product design and financial statements to taxation and operations. These fundamental changes, especially to their system will be both time-consuming and costly.

While the implementation date of 1st January 2021 may seem a long way off, the journey to IFRS 17 compliance will be time consuming and organisation need to act now if they haven’t done so yet.

The regulation represents a systemic change in the valuation of insurance contracts and will require a significant overhaul of financial and actuarial systems, processes, accounting and disclosure policies. IFRS17 compliance has quickly become a high business priority. The ripple effects of which will be felt throughout the finance value chain: from finance calculations to accounting, costing, planning, forecasting and reporting.

In a nutshell, IFRS 17 requires the revenue and profit earned from an insurance contract be recognised over the period the insurer provides coverage. Insurers do so by amortising unearned profits on a straight-line basis over the lifetime of a contract. The general effect of IFRS 17 is that it spreads the revenue as well as the profit over the lifespan of a contract as opposed to the current practice of taking most of the profit on Day 1.

Phil Keet, Managing Director at Millennium Consulting states, “The impact of this is that it raises certain challenges for insurance companies. It will have an impact on their profit statement, especially in the first year of implementation. The underlying economics don’t change, the risk is the same and the premium is the same, and it should generate the same profit over the duration of the contract. However, senior management and investors prefer to recognise profit now rather than spread over a 20 or 30 year period”.

97% of senior UK insurance professionals believe business is going to become more complex and costlier to operate in as a result of the regulation, and 90% believe that the cost of compliance will be more than the Solvency II Directive, according to research from data firm SAS.

Given the large scale and complexity involved, the time period to implement the necessary changes is tight. Finance and actuary functions will need to collaborate and work together closer than ever before to map their journey to compliance and assess the architecture gaps within the IT infrastructure. Most businesses do not have the computational ability to cope with the complex calculations.

The cost of compliance with IFRS 17 is significant, resulting in smaller companies potentially struggling. The top 10 global life insurance companies, combined, are expected to spend in excess of US$2 billion on this new standard. Half the compliance cost is expected to comprise in investment in systems.

To deliver on IFRS17, insurers will have to generate and process much higher volumes of data. There will need to be a complete shift in the way that information is collected, stored and analysed. Finance, actuarial and risk management IT architectures used within insurance companies are often siloed and rely on legacy tools that are not flexible enough to handle the detailed requirements of IFRS17. The temptation is to attempt to patch up the existing separate solutions, which may seem like a simple and cost-effective answer but one which will more than likely prove incredibly costly and risky. The siloes make for very manually intensive and error prone data management, trying to trace the reported figures back to the calculation models and assumptions that produced them.

“IFRS 17 compliance will be difficult to achieve by simply adapting legacy systems. Due to the complexity of the regulatory requirements and the large amount of good quality data that is needed, pursuing minimum compliance at minimal cost will leave insurers highly exposed” says Phil Keet.

IFRS17 also requires businesses to look and plan to the future. It introduces the concept of a forward-looking view on the finance data. Cash-flow modelling and forecasting and the ability to simulate the impact of a new product or a change in pricing on the IFRS17 financial statements are becoming key functionality requirements for technology under the new regulation. Trying to achieve this with legacy systems would be nearly impossible.

2021 seems like a long way off but in reality companies only have until the end of 2019 to design, build, test and implement all their system changes, as the transition adjustment and opening balance must be calculated effective of 1st January 2020, in order to derive the first-year comparatives.

Complying with this new regulation will force insurers to collate and store a huge amount of data from multiple source systems. A benefit of this bi-product of compliance will be a hugely valuable resource which insurers can use to give a clearer view of their insurance contracts’ performance. Combining data on a single platform for planning and forecasting, will eliminate silos across the organisation and ease data reconciliations, allowing more accurate results which the business can have confidence in. It will also enhance the comparability of the financial reporting and help insurers benchmark themselves against competitors.

Insurance companies need to look at a unified data platform to support the large volume of data required to achieve the regulatory requirements. The current reliance on heavily, manual processes and legacy systems has to change. Insurers need to look towards collaborative and open platform solutions that can mine and orchestrate the data from across the business, support the implementation of the core reporting requirements and be agile enough to respond to scenario modelling and the what-if analyses required during the transition period.

Starting implementation programmes early can help insurers seize new IFRS 17 market opportunities. I will be a time consuming and costly journey but will ultimately be one worth taking.