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John Morley

Hello everyone and welcome to EY’s IFRS 17 podcast series. A series, that brings you news and views on IFRS 17, the new international accounting standard on Insurance Contracts.

My name is John Morley and I’m a consulting partner based in Singapore. I’m helping a number of regional and multinational clients on their IFRS 17 implementation journeys.

Throughout this podcast series, we’ll be asking some of our global insurance professionals to discuss key topics and interpretative issues in IFRS 17, and to consider the implementation approaches and challenges the new standard presents.

In today’s episode, we’ll discuss some of the issues around data and the challenges in understanding what the financial information produced actually means. We’ll also talk about a solution that we think can help.

Joining me is Chris Marsh, a Manager in our UK Actuarial team who has been working on IFRS 17, data analytics and financial reporting for the past few years.

Hello Chris and welcome.

Chris Marsh

Thanks John, I’m excited to be here.

Morley

So, Chris I’ll start by setting the scene.

In the last few years we’ve had some significant regulatory change on a global scale – and financial institutions will need to comply with major new requirements in the next few years.

I’m particularly thinking here about the new accounting and financial reporting requirements of IFRS 9, IFRS 17 and the long-duration targeted improvements to US GAAP – or LDTI for short.

There’s no doubt these create many challenges for insurance companies and banks.

Marsh

You’re absolutely right, John.

Firstly, businesses will be disclosing more information – so that means the volume of data being processed will increase, and that data will be drawn from many sources.

Secondly, I think we’ll see an increase in the dimensionality of data.

Morley

Can you explain what you mean by that?

Marsh

Sure. Data will need to be more granular – for example, we have the concept of the unit of account under IFRS 17, so this will further increase data demands.

Morley

Thanks, Chris. And do you see any other challenges?

Marsh

Yes, as well as increased disclosure and data dimensionality, the new accounting standards will change the way profits are measured and value is created.

Morley

So, if we look at all these impacts, it’s clear that financial institutions will need to transform the way they store, analyze and report their data – they’re going to have to do this so that they can extract insights and run their businesses effectively.

This is a big ask. So, Chris, is there a way that EY can help?

Marsh

Yes, John. At EY, we want to help firms on this transformation journey and so we’ve developed the EY Intelligent Metrics Navigator – we call it IMN for short.

The IMN is a data analytics solution that allows insurance companies and banks to transform data so that it can be visualized, real time, on the cloud and in a reliable way.

As you can imagine, we’re seeing lots of ways that the IMN solution can help our clients and deliver a range of benefits.

To start with, the IMN really helps with the data challenge.

Morley

I agree, Chris. From what I’ve seen, this has got to be one of the major benefits of the IMN.

One reason is that we’ve developed data models for the changes caused by IFRS 9, IFRS 17 and US GAAP LDTI. We can integrate data from multiple systems into a single location and transform it in a systematic way so that it can be visualized.

Marsh

Yes, and the fact that our environment introduces the use of virtual data models is also important – this means that data is visualized but not stored in the cloud.

Morley

You’re right, Chris. This is really a quantum leap in the way we use data because we no longer need to rely on data lakes. Instead, we’ve introduced the concept of data hubs and the virtual provisioning of data – so it’s accessible on demand and there’s no data replication.

Marsh

There are clearly big benefits around data.

But the IMN can also have a big and positive impact on stakeholder engagement.

Morley

Can you tell me more about that?

Marsh

Of course.

We’ve sometimes found that c-suite stakeholders can be detached from the transformation programs of IFRS 9, IFRS 17 and LDTI. That’s understandable, given all the complexities and competing demands on people’s time.

But the IMN gives management a storytelling capability that really brings results to life. It creates financial disclosures that are dynamic, giving the user power to drill down into the business so that they can really understand what’s driving value. Key messages can be easily highlighted and communicated.

Morley

That must encourage dialogue between stakeholders.

Marsh

Yes, it does. It also improves collaboration and breaks down knowledge barriers across the firm.

Morley

So, we’ve got benefits around data and stakeholder engagement.

Marsh

And then we come to cost.

Morley

Yes, Chris, this is another big benefit.

The IMN can reduce cost in many ways.

It optimizes existing processes, so reducing cost.

It introduces standardization to reporting by using predefined templates, which increases speed.

It also removes the need to manually prepare slide decks for management information – so the process isn’t only faster but there’s also less risk of errors.

Marsh

That’s an important extra benefit, John.

Do you see any other ways that the IMN can reduce costs?

Morley

Yes – a couple more.

The IMN brings consistency across global business units, so minimizing unnecessary communications.

And it’s what we call a “platform as a service” on the cloud – which means there’s no need to install applications on premise or store data in a redundant way.

Marsh

OK. That sounds great on paper. So, I think it would be helpful to talk about some of the successes we’ve already had with the IMN.

Morley

Yes Chris, let’s do that.

I’d like to share one of the successes we’ve had in implementing the IMN with a global insurance group.

The aim of the work was firstly to support their MI strategy.

And we also wanted to enable the reporting – and understanding – of their dry-run results.

I know you worked on this project Chris, so what was your role?

Marsh

I was involved in the most challenging part – defining the data model.

I led the team that aggregated the data from different sources, including global business units.

We organized this data in a systematic way, using accounting and actuarial techniques.

This meant it could then be passed to our analytics team to generate dynamic visualizations.

Morley

You make it sound quite straightforward, but I’m sure there were challenges along the way.

Can you give us a flavor of some of the challenges you faced during the project?

Marsh

You’re right, John. It wasn’t as easy as maybe I made it sound and we certainly had some challenges to overcome.

For example, results data from the various business units hadn’t yet been looked at in detail and so we had to go through this and organize it in a structured way so that visualizations could easily ingest it and work effectively.

We also didn’t plan to use a live connection for the dashboards from the beginning. But through ongoing discussions it became clear this had to happen. It was challenging to build queries that could efficiently extract the data from the results repository but through our teamwork with the client (and some tenacity) we got the job done.

Morley

Have you had any feedback from the global insurance group on how they feel about the IMN implementation project?

Marsh

Yes, we have. The client feedback has been overwhelmingly positive. For example, they’ve been very impressed by the amount we did in the time available.

Morley

And has the client experienced any specific benefits?

Marsh

Yes, John.

They now have a global platform on the cloud.

Secondly, the project has opened the door to next steps. The client is gearing up for a parallel run with real data.

Thirdly, the local entities are seeing real benefits.

Morley

That’s encouraging. What are the local entities saying?

Marsh

They’re relieved about not having to cope with all the reporting changes alone and not having to rely on slide decks. They like having the templates and not having to prepare data manually. They’ve also seen better discussions taking place across the group.

Morley

That’s all great to hear, Chris.

Marsh

Yes, I’ve been really pleased with the outcome.

But we’re always looking for ways to improve our client support and solutions.

So, John, could you give some insight into what’s next for the team behind the IMN?

Morley

Of course.

For the last few months, our team have been working on enhancing the IFRS 17 content in the IMN. This was finished at the end of June. We now have content that looks at contracts from the perspective of all three of the IFRS 17 measurement models – the general model, variable fee approach and premium allocation approach.

Marsh

That’s a major milestone, John.

I’m sure you’re looking to demonstrate what the IMN can do for insurance groups and banks.

Morley

Yes, Chris. I’m keen that we run demos for any organizations that could benefit from the IMN – or even just give them more detail on what it can do. I encourage anyone to get in touch with me – or you.

Marsh

Yes – it would be great to hear from people who’d like to find out more about the IMN.

But John, it’s now time to wrap up this discussion.

Do you have any key messages for insurance groups and banks?

Morley

Sure. I’d emphasize that IFRS 9, IFRS 17 and US GAAP LDTI are bringing the biggest changes that the financial sector has seen for decades.

Those changes inevitably create challenges at both ends of the process spectrum – to both data and to the understanding that organizations ultimately have about what their management information and financial reports are telling them.

So, as you highlighted, data has increased in both volume and complexity.

And there’s been a paradigm shift in terms of how to interpret the new balance sheets – how to understand what they’re saying about performance.

As a result, if banks and insurers are going to address these challenges effectively, they need a transformative approach – and the IMN can play an important part in that journey.

Marsh

Thank you, John. That’s a great summary.

Morley

Thanks for your insights too, Chris.

And thank you everyone for listening.

As always, we’d welcome feedback and suggested topics for future IFRS 17 podcasts. You can email us at financialservices@au.ey.com, that’s financial services – all one word – at AU dot EY dot COM.

 

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