But costs and lack of a global standard are a concern for the industry
Research from Deloitte has revealed that 59% of insurers have started preparations for revisions to accounting structures, but rising costs are still a major issue.
Insurers have predicted that the cost of implementing the changes could be as much as $50m (£30.9m). Last year more than half of insurers estimated the costs to be less than $10m.
The Deloitte research also revealed that 89% of insurers expected to complete the work within the required three-year time-frame, but boardroom understanding of the changes was not extensive.
Deloitte global IFRS insurance leader Francesco Nagari 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.”
Insurers are also concerned by the failure of the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to agree a single global accounting standard for the industry. Instead, the IASB and the FASB have opted to issue their own separate draft rules for insurance contracts (IFRS 4) and financial instruments (IFRS 9).
Nagari said: “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.”