The implementation of International Financial Reporting Standard 17 (IFRS 17) is set to revolutionize the insurance industry in Kenya ushering in stringent requirements that players must adhere to. Any entities which offer material insurance contracts as defined under the standard will be affected by the standard. These include insurance companies and could extend to organizations that offer insurance contracts in addition to other services such as banks.
As insurers gear up to comply with this new accounting standard, they have an opportunity to unlock a range of benefits. IFRS 17 brings transparency, improved risk assessment and enhanced comparability, positioning Kenyan insurers for sustainable growth and attracting investor confidence.
First, IFRS 17 mandates a comprehensive framework for measuring and recognizing insurance contracts. By adopting the General Model or the Premium Allocation Approach (PAA), Kenyan insurers will present financial statements that accurately reflect the present value of their insurance liabilities. This transparency enhances the visibility of insurers’ financial health and solvency, which in turn strengthens the trust and confidence of customers, regulators, and investors.
With IFRS 17, Kenyan insurers will also benefit from improved comparability within the insurance sector allowing for easier benchmarking and performance comparisons among insurers. Insurance contracts within the scope of IFRS 17 include insurance and reinsurance contracts which the insurer issues, reinsurance contracts it holds and investment contracts with discretionary participation features the insurer issues provided.
This transparency fosters healthy competition and spurs insurers to optimise their operations, enhance customer service, and innovate in their product offerings. As a result, consumers will have a wider range of choices, leading to a more vibrant and customer-centric insurance market in Kenya.
Under IFRS 17, insurers are required to evaluate and disclose the risk and uncertainty inherent in their insurance contracts. IFRS 17 requires an entity that issues insurance contracts to adjust the estimate of the present value of the future cash flows of the contracts to incorporate a risk adjustment for non-financial risks. This will enable Kenyan insurers to enhance their risk management practices by incorporating a more holistic view of risk into their decision-making processes. By quantifying and managing risks more effectively, insurers can make informed underwriting and pricing decisions, improve reserving practices, and ensure the long-term sustainability of their operations.
Investor confidence plays a crucial role in attracting capital and fueling growth in the insurance industry. IFRS 17 establishes consistent reporting practices, addressing concerns about varying accounting standards and practices. This standardization enhances the transparency and reliability of financial information, instilling greater confidence in local and international investors.
The increased investor trust can unlock access to capital, facilitate mergers and acquisitions, and drive strategic partnerships, enabling Kenyan insurers to expand their reach and explore new avenues for growth.
IFRS 17 compels insurers to delve deeper into their data and systems, encouraging them to strengthen their data management capabilities. This emphasis on data provides Kenyan insurers with valuable insights into customer behavior, claims experience, and product performance. Armed with this information, insurers can develop targeted marketing strategies, tailor product offerings to customer needs, and streamline operational efficiencies. The ability to make data-driven decisions will enable insurers to gain a competitive edge in the market.
As one of the leading insurance brokers in the market, Minet Kenya has broad expertise in IFRS 17 implementation and is in pole position to partner with insurers on the IFRS 17 implementation journey.
As insurers gear up for compliance, it is essential to view IFRS 17 not just as a regulatory requirement but as an opportunity to revolutionize business practices and drive sustainable growth. By embracing IFRS 17, Kenyan insurers can position themselves as industry leaders and contribute to the development of a vibrant and resilient insurance market in Kenya.
By Teddy Ayodi – Actuarial Consultant at Minet Kenya
