While Canadian insurers have successfully navigated the many challenges they’ve faced in recent years, the business landscape continues to become more and more complex.
As we explored in our recent global report on trends in the insurance industry, insurers are facing evolving expectations and requirements around climate risk and social purpose, new forms of competition and renewed acceleration in digital innovation as disruptive technologies, like generative artificial intelligence, gain momentum. Amid the resulting race to adopt new technology and added challenges created by growing volatility in the capital markets, insurers are coming under rising pressure to optimize their portfolios, acquire new capabilities and form strategic partnerships.
A key resource in navigating this complex business environment is insurance companies’ own finance functions, which themselves have been undergoing major changes as a result of the ongoing transition to International Financial Reporting Standard 17 (IFRS 17). While the IFRS 17 transition has by no means been easy, it offers significant opportunities for insurers’ chief financial officers to build an even more effective, efficient and insights-driven finance function that better enables their companies to pursue change, ensure resilience and grow. So how can they turn a major regulatory change into a source of competitive advantage?
Going beyond minimum viable products
There’s no doubt that implementation of IFRS 17 has been a complex undertaking for Canadian insurers, particularly for CFOs and the finance functions they lead. While insurance companies have tended to be hesitant to adopt new technologies for back-office activities like their finance functions, the transition to IFRS 17 has forced them to do so.
But with high costs to modernize their technology architectures and many of the IFRS 17 vendor solutions subject to their own maturity cycles, insurers have tended to focus on building a minimum viable product to comply. While this was understandable given the timelines involved, the implications of adopting IFRS 17 go well beyond a technical compliance exercise. Other key impacts include:
The transition has finally brought together insurers’ actuarial and corporate finance teams, which traditionally operated in separate spheres but are now working from common systems and data. This increased collaboration brings several benefits, such as streamlining and increasing the accuracy of expense allocation across all product lines. IFRS 17 adoption also allows for increased transparency of financial controls across the value chain while letting finance teams focus more on preventive control measures. This reduces downstream remediations, which means fewer delays in monthly and quarterly close cycles.
- Insurers now have access to much more granular data than they’ve had in the past. For CFOs, this lets them finally achieve the goal of having a direct link between the ledger balance and the source insurance policy. This, in turn, allows for improved data lineage, accuracy and transparency.
- The end result is a foundational platform for deeper and more powerful insights and analytics into performance, including during the pre-close cycle.
Generative AI and the IFRS 17 transformation journey
As CFOs eye the transformative opportunities created by the IFRS 17 transition, it’s an ideal time to explore how to incorporate a fast-evolving technology that so many leaders are focusing on right now: generative AI. We’ve identified several possibilities:
generating enhanced insights into insurance claims, impacts on working capital and claims settlements to streamline subledger close cycles;
preparing presentations for boards of directors and senior executive teams that highlight meaningful insights with market-specific benchmarking data;
providing insights into ongoing budgets, forecasts and variance analysis as well as better visibility of spend across the organization; and
enhancing audit and control effectiveness through automated solutions that analyze large volumes of financial data to detect patterns and identify potential risk areas.
IFRS 17 and the future of finance
These are just some of the possibilities created by the IFRS 17 transition. While these examples of new efficiencies and deeper insights are important, what they also point to is an even bigger opportunity for insurance companies to embrace a broader reinvention of their finance functions that IFRS 17 can be a catalyst for. To do this, attention now needs to turn to three key elements of transforming the finance function for the new, digitally focused operating models enabled by the IFRS 17 transition:
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Workforce transformation: How can insurers further break down silos between actuarial and corporate finance teams to get the full value of having the single source of truth that’s now possible with IFRS 17 adoption? The significant changes brought about by IFRS 17 also make this an ideal opportunity for insurers to embrace next-generation finance operating models that bring together diverse talent in areas including accounting, data science and ethics as part of a transformative workforce able to accelerate change within the organization.
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Continuous process improvement: How can insurers use the technology changes brought about by IFRS 17 adoption to streamline and automate more processes and better manage risks? This is particularly important given the need to move past the manual workarounds and approval steps many finance teams adopted to achieve a minimum viable product during the initial transition phase. Insurers can also use the key performance indicators enabled through the IFRS 17 journey to measure the impacts of the process changes they’ve made and uncover new opportunities for continuous improvement and further efficiency gains.
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Data and insights: How can finance teams use the more granular insights enabled by IFRS 17 to help build a more data-driven culture and bring even more value as a strategic advisor to the business? This opportunity to better measure performance through access to more relevant, higher-quality and timelier data becomes even bigger when insurers are also able to incorporate third-party sources into their analysis. External benchmarks can serve as valuable tools for finance teams to assess profitability, efficiency and risk management practices so they can help their business partners make informed decisions and identify areas for improvement and further opportunities to remain competitive and grow.
One of the most powerful aspects of addressing these elements together is they’re mutually reinforcing. By embracing opportunities to further improve processes and create efficiencies, for example, finance teams can increase their capacity and free up resources to focus on a more insights-driven role. And by creating a more data-driven culture focused on providing the key performance indicators the business needs most, CFOs can better attract and retain key talent with the right skills and mindsets.
Turning the IFRS transition into a source of competitive advantage
For insurers, the result is a more strategic finance function that’s ready to help them take advantage of the richer data the IFRS 17 transition has made possible. This, in turn, leads to positive outcomes for the business. For example, access to real-time, forward-looking insights, such as enhanced sales and profitability analysis, can help insurers increase revenue by uncovering new sources of value and growth.
Other benefits cost savings from phasing out legacy technologies as well as operating efficiencies from reduced time spent on collecting, standardizing and reconciling data across different areas of the finance function. And beyond greater efficiencies in managing data, insurers will see reduced risk as a result of improved accuracy and confidence in the numbers being reported.
It’s all about using the IFRS journey to elevate the finance function’s role in helping insurance companies navigate a changing and complex business landscape and build competitive advantage.
To learn more about these and other possibilities created by the IFRS transition for your organization, please reach out to us any time.
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