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|Vanessa Lou, director of Actuarial Services in Southeast Asia, EY Singapore|
IN THE SIMPLEST WAY, HOW WOULD YOU DESCRIBE IFRS 17?
IFRS is the core of auditing and accounting. It has completely changed the face of this area – a change so big that it requires alterations in all other aspects to be able to respond to the continual evolution of the accounting profession.
Those aspects include strategy, product categories, people, system, and processing. This also means that IFRS significantly changes the way insurance companies operate. However, we should also see this as an opportunity to restructure product categories, strategy and business operations in general.
A new business strategy will bring in new gains for such companies.
WILL DRASTIC CHANGES ALSO BRING IN LOTS OF SUBSTANTIAL CHALLENGES?
This is true. IFRS 17 introduces new requirements which would bring unique challenges in implementation for insurance companies, such as CSM calculation, level of aggregation, the availability of data, transitioning, risk adjustments, allocating expenses, and more.
However, I think expertise is the greatest challenge, as insurance companies will need to find someone with a suitable and in-depth knowledge of IFRS 17.
They will also need to find someone with experience and knowledge in various fields such as accounting, actuary, and IT.
This is a challenge as the Vietnamese insurance industry is still small and does not have many suitable experts available.
Thus, the search for people is becoming increasingly difficult with a growing gap between the expansion of insurance industry and the shortage of industry experts.
WHAT WILL INSURANCE COMPANIES GAIN FROM IMPLEMENTING IFRS?
Despite many challenges, once IFRS is successfully adopted, there will be a homogeneous financial reporting system between different insurance companies and different markets globally. Reports created in the same country can be identical.
However, when compared to different countries such as Vietnam and Singapore, there will be great differences. This is because Vietnam is using its own accounting standards, while Singapore is using IFRS.
Once IFRS 17 is successfully implemented locally in the future, the reporting process of insurance companies will be standardised. Then, readers will be able to compare the financial reports of different insurance companies from varying countries. This comparison based on the same standards will give people a clearer and more meaningful understanding of the financial information, and from there they will be able to make better decisions in investing, management, and regulation.
HOW SHOULD THE IFRS 17 JOURNEY TAKE PLACE IN VIETNAM?
As far as I know, Vietnam plans to adopt IFRS before 2025 to replace the current VAS. In May 2017, the International Accounting Standards Board (IASB) released IFRS 17, focusing on insurance contracts effective from January 1, 2022 according to the latest plan.
This means insurance companies in Vietnam should start planning for IFRS 17 implementation. Early planning would help these companies identify necessary tasks and allocate the needed resources for implementation.
In my opinion, the best way to implement IFRS 17 is to “go backwards.” First, we should think about how the world will be in 2022, then about what you can or need to do now to reach it in a timely and well-managed manner. Implementing IFRS 17 will feel like crossing a bridge as you are building it.
VIETNAM HAS NEVER IMPLEMENTED IFRS BEFORE. WHAT CAN THE COUNTRY LEARN FROM INTERNATIONAL EXPERIENCE?
There are three things that can be learned from a country such as Malaysia.
First, there must be an agreement across organisations relating to the implementation project as it requires resources from various departments such as finance and accounting, actuary, and IT. To reach this agreement, a project manager must be identified. This person will play the biggest role in selecting leading individuals from different departments and assign them to the project.
Second, we must look at the database and IT infrastructure that an insurance company currently has to see where it stands. From there, we must identify data requirements and how well the current system responds. We need to identify our starting point, our goal, the distance to reach our goal, and plan to close the gap.
Third is how to hire new and keep current people. To maintain people, especially those with true potential, companies need to have a clear plan. Aside from salary and bonuses, companies must provide them with opportunities to learn and climb the career ladder if they choose to stay. This is a must-do for companies to retain talent.
It is necessary to accept hiring people from different companies in the same field. Also, hire from related fields such as finance, banking, securities and IT is needed. Once they are in, they can be further trained to fit with the company’s operation.