Business Change in 2022

Business Change in 2022

The financial crisis of 2008 fundamentally altered the environment for the Financial Services industry and since then banks and insurance companies have spent hundreds of £ millions on regulatory compliance initiatives.

In the insurance world for example, IFRS 17 will continue at the forefront of insurance companies thinking until 2023 and beyond. Designed to achieve the goal of consistent, principle-based accounting for insurance contracts, IRFS17 requires insurers to integrate data from across their organisation and create a single version of the truth. However, the “golden source” data created not only enables them to meet their regulatory obligations but also to access granular data that was previously inaccessible. It is a classic case of the law of unintended consequences.

In December 2021, the International Accounting Standards Board (IASB) issued Initial Application of IFRS 17 and IFRS 9—Comparative Information (Amendment to IFRS 17). The amendment is a transition option relating to comparative information about financial assets presented on initial application of IFRS 17. The amendment is aimed at helping insurers to avoid temporary accounting mismatches between financial assets and insurance contract liabilities and therefore improve the usefulness of comparative information for financial statement users. (https://www.ifrs.org/projects/completed-projects/2021/initial-application-ifrs-17-and-ifrs-9-comparative-information-amendments-to-ifrs-17/)

2022 is likely to be a challenging year for the insurance industry. For jurisdictions working towards a 2023 effective compliance date, the pressure has increased and the next six months will be critical if the deadline is to be met.


Millennium Consulting believes that compliance with the new regulation can allow insurers to become disrupters, digitise their processes and fundamentally re-engineer their Target Operating Models.

So, whether your actions are driven by regulatory compliance or from the desire to adopt best practice, Millennium is here to help. Our team are experienced financial markets professionals with deep domain expertise, be it products, market mechanisms or the business and regulatory drivers that are shaping the industry. Working with many of the world’s leading financial markets and insurance companies we help them define, manage and deliver the change they need to achieve market leadership.


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.


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.