The Kenyan insurance industry is struggling with the compliance costs of the new reporting standards that came into force in January last year, opening a regulatory nightmare in a market where many players flout capital and reporting rules.
IFRS 17, which replaced IFRS 4, requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to such deals.
The new accounting standards target transparent reporting about an insurer’s financial position and risk.
A new study by consultancy firm Deloitte covering Kenya and other East African countries says many companies with limited budgets are facing challenges in the implementation of the new reporting standards.
“Many companies are struggling to meet the stringent requirements, facing underestimated budgets, limited access to expertise needed for successful implementation, and inadequate technology and data infrastructure,” according to Insurance Outlook Report 2024: Navigating the Headwinds dated February 2024.
“The transition to IFRS 17 has led to considerable financial implications for insurers in East Africa. The costs associated with acquiring accounting software, actuarial systems, and hiring personnel have been a major concern. Some insurers have delayed implementation due to the high costs involved, especially for small firms.”
The report notes that Kenyan insurance firms are at different levels of compliance, with some facing logistical issues and inadequate actuarial departments while large firms, particularly listed underwriters with stronger financial stability, have complied.
“Smaller firms might find it challenging to access the resources required for the acquisition and integration of actuarial and accounting software,” the report says of Kenyan underwriters.
According to the Association of Kenya Insurers (AKI), they are facing several challenges with implementation.
The lobby says the overall cost of implementation varies significantly across the industry, with core spending areas including the purchase or development of new technologies such as software specifically designed for IFRS 17 and training of staff and management.
