IFRS 17: Waiting is not an option


This means that approx. 450 insurance companies around the world will be affected by IFRS 17 and they all need to be ready to apply these new standards by January 2022 (the previously effective date of January 2021 was recommended to be delayed by the International Accounting Standards Board ( IASB) in November 2019). Although it is now another year for insurers to comply with the new effective date, due to the complexity of an IFRS 17 implementation, there is still no time to wait. It is still urgent, because the need to collect comparative data and carefully consider how contracts are evaluated today against how they will be validated in January 2022 means that your IFRS 17 project start date is now, if you need to be ready in time

In short, what does IFRS 17 mean?

Under current accounting standards, the valuation of insurance contracts is often calculated using historical data and is based on the available data at the beginning of the coverage period. However, IFRS 17 requires a forward-looking valuation using best-estimated cash flows. It focuses more on the profitability of portfolios or groups of contracts. It sets out guidelines for recognition, measurement, presentation and disclosure of insurance contracts.

Changes at the company level

Not only does IFRS 17 affect accounting or financial reporting, but it can affect the overall financial direction of insurers because it has the potential to affect product development, core processes, incentives and more.

With regard to product development, IFRS 17 can cause insurance companies to ask whether their products are right for the future or the profitability of individual products. The end-to-end nature of IFRS 17 can also lead to questions about processes, such as how to support fast closing activities or about its impact on actuarial, accounting and feeder system processes. Staff and management incentives may also need to change, depending on revenue changes. These are far-reaching and far-reaching issues.

Looking at the implementation of IFRS 17, its principle-based approach offers a lot of flexibility, but also requires intensive analysis. As insurers begin to answer some of the questions, they will have to think about how to interpret these principles and decide what works best for them.

A solution-based approach

What should be considered when thinking about IT systems for implementing IFRS 17? Below are some questions to consider when considering IFRS 17 compliance.

What is your level of IFRS 17 ambition?

What is important to you as an insurance company? Is it pure IFRS 17 compliance, or are you at the other end of the spectrum, seeking a holistic approach to all internal and external requirements covering all reporting and regulatory systems? It appears that many insurers are aiming more for pure IFRS 17 compliance, but are keeping track of what can be reused for other needs.

What level of standardization is appropriate?

Imagine a multi-unit insurance group doing business in several different countries. How much standardization is required? You can choose a one-size-fits-all model that also allows you to harmonize and standardize accounting and actuarial processes. Alternatively, at the far end of the spectrum, you can implement device-specific solutions. This may not be the best choice in the long term, but it can be a pragmatic solution in the short term. A hybrid approach can also work well in the short to medium term.

What level of freedom is appropriate for each business unit?

Currently, actuarial systems are mostly local, but new IFRS 17 platforms are likely to be centrally implemented by enterprise IT.

You could say that IFRS 17 is mostly about a central calculation engine and a central process, and that it is also too complicated for individual business entities. Smaller business entities need to spend a lot of effort and resources to get up to speed on IFRS 17 and the new requirements. So it makes sense that everything is centrally managed through common processes. However, there is also an argument for having greater freedom for individual business entities to make the process work better for them. The ideal approach is likely to balance strong central management with a certain level of freedom at the business unit level.

Business transformation or IT upgrade?

You must decide how to position the IFRS 17 project. It can for example. Be a trigger for financial transformation. At this point, given the timeline, insurers are most likely to concentrate on reworking their financial and actuarial end-to-end processes and leaving further transformation for later.

What is the right approach to finance and governance?

Finally, what would the right project management model for IFRS 17 look like? And what is the right method of financing? Again, the choice is between centralized governance or mostly local projects and local budgets based on a central source of information and standards. A pragmatic approach would involve collaboration to create end to end processes throughout the organization. This will include IT architecture and changes to the actuarial systems. Communication from stakeholders to analysts should also be handled centrally.

A system approach

Insurance companies need to decide how to apply IFRS 17. Its principle-based approach requires some time to clarify a standard interpretation that also allows for some flexibility in the future. Different regional perspectives (such as the EU or Asia) need to be integrated, and insurers need to define how IFRS 17 can be implemented in a way that supports your company’s fast-closing deadlines.

Definition of an IFRS 17 platform

The IFRS 17 platform will be the new, significant, architectural component. It should include central data storage to cover all necessary central metrics, detailed audit tracks, and postings. To be successful, it must meet five key requirements, keeping in mind that this infrastructure will be used for at least the next 10-15 years:

  • Full coverage of regulatory and business requirements, including all calculation methods (BBA / GMM, PAA and VFA practices).
  • Predefined models or content for financing and risk.
  • Flexibility and scalability.
  • Seamless integration with the existing architecture.
  • Powerful and reliable solution provider.

Developing a project roadmap

Although the current effective date is now recommended to be 2022, it seems reasonable to aim to be ready by 2020. This will allow companies to avoid a sudden last-minute approach. It is especially useful for managing the risk of things going wrong without time to correct them. After all, there is no plan B whose implementation should take longer than you thought. Early implementation also allows for a learning curve and allows time to collect comparative data.

In a pragmatic way, it makes a great deal of sense to consider keeping the current closing calendar. This means you can define end-to-end processes early and perform early testing. In terms of testing, the absolutely unique end-to-end integration test is recommended, as is joint ownership of the global integration test and transition involving business, actuarial, accounting and IT.

key Recommendations

Perhaps the most important thing to remember is that there is a very clear time limit for implementing IFRS 17 governance systems.

It is worth planning an early end-to-end test to get your individual first lessons. This should help motivate the project teams, which is important because this is a long journey and it will be important to keep them going. The other benefit of an early end-to-end test is that it allows more time to make changes as a result.

A long-term investment

IFRS 17 implementation means making a long-term investment in a system that will be used for the next 10-15 years. It will be worth going for an integrated approach based on an open and scalable platform. This should be designed to be able to manage both today’s and possible future requirements of IFRS 17. It will also help orchestrate the entire end-to-end process beyond many sleepless nights. It represents the best in pragmatism.



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