With the 2012 deadline for the adoption of International Financial Reporting Standards (IFRS) by companies around the world getting closer, African insurance industry may be left behind if the various countries have not started preparation towards meeting the deadline as the continent operators are slow to adopting the accounting practice.
At the just concluded African Insurance Organisation seminar in Duala Cameroun there were debates and apprehension regarding the benefits and challenges involved in switching over to IFRS. The AIO seminar was on Global Financial Crisis: Challenges for the African Insurance Industry.Discussants at the seminar said the implementation of IFRS would help African insurance industry to speak the same accounting language as their counterparts in South Africa and Ghana that have already tolled the line of the international financial reporting model. The tone of the seminar showed that over 100 countries around the globe have complied with IFRS standards whilst some countries are working towards aligning with the standards by 2011 but Nigeria and some other African countries seem to have no immediate plan to adopt the standard in insurance account reporting. Mr George Onekhena, Commissioner for Insurance (Fin & Admin) who delivered a paper at the seminar believed that the adoption of International Financial Reporting Standards (IFRS) by African insurance industry would offer important benefits to insurers, including the potential to simplify financial reporting and reduce accounting complexity and the costs associated with it.
Instead of preparing both Generally Accepted Accounting Principles (GAAP) and statutory financial reports, Onekhena a chartered accountant said, insurers would ultimately comply with a single IFRS standard, adding that IFRS also would enhance transparency for investors and shareholders.
He said that for African insurance sector to ensure readiness for IFRS adoption, insurers must begin to plan today for the business transition and IT infrastructure requirements, evaluating their accounting systems and implementing new processes.
“IFRS requires two years of comparatives, best practices and a running of comparative ledgers for five years. Nonetheless, the transition to IFRS presents insurers with a valuable opportunity to streamline reporting, expand visibility and reduce reporting costs”According to him, “IFRS will likely contribute to substantial changes in insurance product design, price and offerings; investment strategy; risk management practices; securitisation; and merger and acquisition (M&A) activity. Together, these changes will give rise to pressure for both convergence and divergence across insurance lines, thereby adding complexity and dynamism to the market structure of the insurance industry.
He stated “Whether or not an insurance company concurs with the merits of IFRS, it behoves its management to consider carefully the potential implications of the widespread implementation of IFRS in the industry. To compete most effectively with a new reporting regime in place, insurance companies should begin to visualize and strategies for the journey upon which IFRS may guide the industry. By taking a proactive approach to understanding how the implementation of IFRS will impact key areas of insurers’ business strategies, management can avoid the risks of being blind-sided and seize the new opportunities IFRS presents for differentiation and competition”.
“As far as African insurance industry us concerned, there are just compliance issues that need to be addressed. And it is now for companies to take the pains of knowing what the standard provides and also look at what the insurance laws provide and then act accordingly’.According to Onekhena “Any organisation that has not started working towards the IFRS standard may be left behind going by the deadline of 2012 because it is a massive project. It runs into many pages of challenges and there are certain things that companies must do to prepare for the alignment with IFRS rather than wait to be left behind”
Despite some challenges that come with IFRS, Onekhena who delivered a paper on ‘Options for Optimising Cost in the Wake of Global Financial Crisis’ admitted that there are inconsistency in the accounting for insurance contracts, particularly in the valuation of liabilities.He said “There is an urgent need for action on the IFRS standards. I believe that IFRS has come to stay and companies should start to prepare themselves. There are certain issues bordering on awareness at the board and management levels. The deadline is short and that is the more reason why companies should start early to look at what they need and how it is going to impact on their system on a broad basis so that they begin now to acquire the required skills to enable them key into it”
However, he admitted that the IFRS is not without challenges but agreed that it lacked consistency aside from the fact that specific requirements outlined in Phase I of IFRS for Insurance Contracts, insurance companies continue to use local GAAP for accounting for insurance contracts, stated that local Generally Accepted Accounting Principles (GAAP) varies from country to country.Mr Femi Okuniyi, Managing Director of Goldlink Insurance Plc in an interview with Financial Vanguard in Duala, acknowledged that there is need for Africa insurance to have a standard by which they present financial reports. The variance in the financial reports of insurance companies in Africa especially in Nigeria , Okuniyi said, had been one of the problems that the Africa insurance regulators had to look into seriously.
He said, “There should be a format for people to be able to access insurance companies account just at the punch of a key in Africa and even in the Nigerian insurance sector”.“We have had financial reporting problem where some companies start with gross premium income; some others with net premium income and others with earned premium income yet we are in the same insurance industry.
There should be a standard and that standard must be able to cut across the entire sector’. Mr Alfons Van der Vyver of KPMG Services (Pty) Ltd confirmed that many companies across the world have converted to IFRS and have succeeded. He said it is all about taking the bold step to key into it and the conversion he said, is one step after the other.Kamozuro said, “At no mother time than this in the history of African insurance industry can we find it more appropriate to take time off our busy schedules to come together and evaluate the effects of the global financial crisis to the insurance industry in Africa , and if possible, agree on the way forward”