Milliman: Radical change ahead
Pat Renzi, a principal at Milliman focusing on technology solutions, explains how IFRS 17 and the US long-duration targeted improvements (LDTI) accounting change are driving technology investment
Are IFRS 17 and LDTI spurring insurers to invest strongly in new technology tools?
LDTI is generating a significant investment by insurers generally, including in technology, as companies recognise the need for modern and highly governed solutions to support the calculations and the data management requirements. LDTI also requires organisations to use financial models for their GAAP reporting, increasing the demands on efficiency, governance and process.
When it comes to the IFRS 17 insurance accounting standard, many European companies subject to IFRS 17 have already transformed their modelling platforms because of Solvency II. Nevertheless, the data needs for Solvency II were not as demanding as they are for IFRS 17. Overall, IFRS 17 has expanded the scope of what re/insurers need technology to accomplish.
In terms of disclosure and reporting, the requirements of IFRS 17 are very similar to LDTI. They both necessitate significant data management, which is an additional technology burden that has emerged from these regulations that did not come out of Solvency II.
What key features should insurers look for from technology providers when selecting an IFRS 17 or LDTI solution?
Many organisations look at providing LDTI and IFRS 17 solutions that layer on top of existing modelling platforms. That is a valuable option because, for many of these companies, the idea of moving to a new modelling platform is really challenging.
Another approach is to have a single platform where all the policy and experience data is managed as well as calculations and results. The value of this option is that everything is tightly integrated and there is an end-to-end platform with a wealth of information to leverage.
There are a handful of players that offer a complete end-to-end solution, such as Milliman. We also offer the option of a layered approach.
For LDTI, we are seeing more companies adopt a full end-to-end solution. This is in part due to the recognition that this US regulation is a radical change that requires a scalable and reliable platform, but it is also seen as an opportunity to transform the modelling process and platform, providing the tools to be more effective and informed.
In contrast, many companies in the UK and Europe have already been through a finance transformation to adapt to Solvency II, so the layered-on solution makes sense.
How important is cloud technology becoming to re/insurers as a risk management tool?
What the cloud provides is a reliable and scalable infrastructure that facilitates collaboration, cost management and information management. Certainly, data management is a critical issue for both LDTI and IFRS 17. There are challenges in gathering and organising the data to support the transition, assumption setting and reporting, including roll forwards, disclosures and unlocking. Leveraging the capabilities of a modern data warehouse in the cloud supports these requirements in a way that will allow companies to leverage the information to support these new reporting requirements, but also provides a platform to mine for broader insights into an organisation’s customers and business strategies.
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