This article was first published in the May 2018 UK edition of Accounting and Business magazine.

Insurance accounting has a tendency to divide people into bunkers. Occupants of the first bunker regard the industry as special, which means its constituents cannot be seen as normal companies. Those in the second will not invest in insurance companies because their accounts are too difficult to understand. 

For 20 years, the International Accounting Standards Board (IASB) and its predecessors have worked to square this circle by trying to devise a consistent way of accounting for insurers, drawing on established principles such as measurement of assets and liabilities at current values, and recognising revenue and profits over the life of a contract. 

The standard, IFRS 17, Insurance Contracts, was published last year and is now going through the EU endorsement process, and the IASB is developing transition guidance. This follows two exposure drafts and 900 meetings with users and preparers of accounts, auditors, regulators and so on.

It is genuinely difficult to standardise an approach to an industry whose raw material is uncertainty (especially in life insurance and other long-term risks) and whose operations are embedded in national tax and consumer protection regimes. So the complaints go on, including ones from a few captains of the UK industry trying to enlist political interference pegged to Brexit. 

However, the results of a patchwork accounting regime are obvious to anyone from outside the industry. Results announcements not only play down the skimpy IFRS 4 interim rules, but bristle with jargon and profit adjustments that are, at best, exasperating and, at worst, raise suspicion of earnings manipulation.

So the case for just getting on with implementing IFRS 17 is strong. That is the position taken by some insurers, such as the German giant Allianz.

It is true that the standard, due to come into force in 2021, will be costly to implement. This is not only because of some fundamental changes to financial presentation, but also because of variation in the way insurance group subsidiaries are accounted for and consolidated. If I were a non-executive director, I would be quite keen on this internal harmonisation to facilitate the job of scrutinising management performance and risk management. 

It is also true that the time and money to be spent on the standard follow another big EU regulatory exercise, Solvency II. No wonder the European Financial Reporting Advisory Group, which is working on the EU’s endorsement of IFRS 17, is conducting case studies with some big insurers that will shed light on the costs.

But whatever they are, the benefits will include, at long last, an opportunity to reduce the 20%-30% valuation discount that European insurers have suffered compared with other quoted companies since the turn of the millennium. And surely it would be a regressive step for the industry to stay in a sectoral, and potentially national, bunker. 

Jane Fuller is a fellow of CFA UK and serves on the Audit and Assurance Council of the Financial Reporting Council