New accounting standards and impact on life insurance

New accounting standards and impact on life insurance

Many are aware that there are new accounting standards that apply to the insurance industry in Australia. These changes are financial instruments (IFRS 9) and insurance contracts (IFRS 17). The changes have brought big changes in many accounting entities when it comes to the financial reporting aspect. 

These new accounting standards bring both benefits and challenges to the insurance industry. According to surveys, most AUstralian insurers are behind their international counterparts when it comes to getting ready for the new accounting standards. It has been found that only 7% of insurers are fully prepared to the new standards while most of them are anticipating less than year preparations before these standards go live on January 1, 2021.

These changes are greatly driving major changes on how insurance companies handle their business. There is no doubt that changes are the greatest changes that will significantly affect the insurance industry after over twenty years. There are only a few months left for the insurance companies to prepare. Insurers need to understand, interpret and apply the new standards on how they process insurance contracts as well as their reporting system. This means they have to adapt to a new process where it will take a lot of time and effort. The new standards do not end on their financial teams but it goes beyond that it needs to reach both their internal and external stakeholders.

Here are some challenges that many insurers are going to face when the new standards are applied.

  • Deadline to publish resulting reports will be shortened
  • Calculations will be more complex
  • Demand for manual activities will possibly be greater
  • It will require more time for understanding and analysis
  • Balance sheet for profit and loss will be in the new format
  • There will be now accounting logic
  • The disclosure of some requirements like estimation process will be changed
  • The reporting of data on content and structure will also be change
  • Planning and forecasting should be adjusted based on the new IFRS regime
  • More transparency on financial results and KPIs
  • The history of reported figures and data should be shown

Now these are only among the many challenges that the insurance company will be facing once the new standards are applied.

These new accounting standards are made with a goal of creating something that will be beneficial for the insurance company in a way that the decision making process will be quick, consistent and in line with the company’s vision or goal.

While there are some challenges that insurance companies are facing, the new accounting standards also presents some opportunities like the following:

  • Enhance the current insurance accounting system to produce accurate calculations and reporting
  • Enhance the financial system and IT solution to cover the new changes
  • The new standards presents the easiest and fastest solution to implement
  • It requires lower investment
  • Leave the old system intact while implementing the new and more efficient system
  • There is higher flexibility in implementing solutions to accounting problems
  • The critical path risk is low

Since the new accounting standards are already set, what insurance companies can do is to understand these changes and its requirements. They should conduct briefing sessions and discuss how they can fully adapt to these changes while minimising issues. Maybe hire an external auditor and regulators like from bookkeeping services in parramatta. There is also a need for them to mobilise their project resources and develop effective implementation strategy.

The new accounting standards may present some issues but there is no doubt that the change is an opportunity for life insurance companies to re-evaluate, rethink and revolutionise their accounting processes in the industry.

Impact of Covid-19 on Life insurance industry

Close up of Life Insurance Policy with pen, calculator

When Covid19 became a pandemic, it hits the news all over the world. One subject that has gained the interest of the public is about life insurance. The coronavirus outbreak has undoubtedly affected the life insurance industry. It also made the consumers wondered how the outbreak will shape the policies they already have. There was an increased in claim costs such as death, disability and drug cost. Since most businesses have been interrupted, potential revenues in the life insurance industry have also been affected. As the pandemic continues to spread across different areas in the world, it brought a rippling effect on financial markets and the economy of the globe. The insurance industry is not exempted. 

The insurance industry is facing some challenges not only on the insurance claims but as well as the economy and the society. However, what the industry is most concern about is they can protect the life and safety of their employees. They are also concern about their distribution partners in the broker/agent community since it would be hard to continue business as usual amidst this pandemic. Just like any other industry, the insurance industry as asked to take a look and amend their management plans in facing this crisis. To continue their operation is also a challenge since they have to ensure that there would only be minimum disruption to their clients.

Life insurance industry remained open for business. But because of the pandemic, many companies were forced to find solutions to make their workarounds effective in maintaining their sales. Also, the demand had increased so the industry must find ways to meet this. Because of the results brought about by the pandemic, some of the insurance companies have changed some things about their policies. This might affect some people negatively, but also, it can work to your advantage. Due to the pandemic, insurance companies have closed their doors to some people. Some restrictions have been applied, such as they will no longer sell their policies to older folks age 70 and above. Applications for people under that age have also been postponed. Long lengths of insurance terms have also been stopped. Only short terms are available. Before, a customer can get temporary coverage while an application is being processed. Now, some insurance companies no longer provide this service. Also, people with underlying health conditions might be ineligible for life insurance.

Although the spread of the virus impacted the insurance business, it will only be for a short time. With how the life of people was affected by the pandemic, there will be likely changes in consumers’ behaviour.  There is an expected increase in demand for pure protection insurance products in the middle of uncertainties. So the pandemic is mostly to impact the medium and long term of the insurance industry in a positive way. The immediate implication of this global crisis is not really on the insurance industry but applicants and consumers. The crisis is expected to result in changes in the perspective of the people. Consumers’ awareness will be improved with regards to how important life insurance is. So instead of having life insurance as an investment, it will then be viewed as something to cover the risks that may arise in the future. This will result in motivation on overall life insurance penetration not only in one country but all over the world. The global economy can surely benefit on this term.

If you are concern in getting life insurance, now would be the best time to purchase one, as advised by experts. However, when shopping for insurance, you should not do it on your own.  It is recommended if you deal it with an independent broker. Do not try to contact individual insurance companies. Independent brokers likely know the companies’ rules and policies. So they can help you navigate through which the company offers policies that you need in your situation.

This pandemic is not really all negative on the insurance industry. While insurance companies have to leave their comfort zones, there are opportunities presented for consumers to buy life insurance. They may not have considered this before, but because of the effect of the spread of the coronavirus, they might see buying insurance as a necessity.