IFRS 17: what can insurers achieve with the extra year to comply?

After more than 20 years of deliberations, the IFRS 17 standard is now in its final stages of implementation. It will significantly change how insurers account for insurance contracts and will impact how finance, as well as the wider business, assesses financial performance.

Based on industry feedback, the International Accounting Standards Board (IASB) has proposed to delay the effective date of IFRS 17 by one year, until January 1, 2022. Although this gives insurers breathing room to achieve compliance, some insurers will still struggle to meet the deadline.

This extra year is a good opportunity for insurers to reconsider their program's ambitions. Will it be a compliance-only exercise, or can the time be used to achieve additional benefits on top of the IFRS 17 requirements? I think the latter is possible, by focusing not only on meeting the minimum requirements but also considering the digital and analytical solutions that can accelerate processes and bring deeper insights on financial performance.

The questions insurers should have answered already

Insurers are on the path to implementing IFRS 17. They've completed impact assessments and are now getting into the finer details of implementation. Most insurers understand the impact on their operating models and have the answers to these key questions:

  • What data do we need and how can it be accessed?
  • Is our IT and data architecture capable of handling the granular data and is it able to support the calculations demanded by IFRS 17?
  • Do we need to update our current IT, build, or buy new solutions?
  • Can our processes produce the IFRS 17 figures in a controllable way, between finance and actuaries, as well as between group and local entities?
  • Have we prepared all levels of the organization to understand the new way of reporting and assessing performance?

The cultural and business implications of IFRS 17 must not be overlooked, and the decision to extend the deadline to January 2022 gives insurers more time to address these as well. Enough time should also be allowed to gain experience with the new processes and insights in order to confidently meet business objectives.

It's all about data

At the heart of IFRS 17 is data and the value it can deliver. The impact assessment should have identified that data volumes will increase in parallel with data granularity, so a robust data management strategy, combined with technological and digital capabilities, are the key enablers to achieve compliance. But the data can also be leveraged using analytics to support key decisions and provide stakeholders, both internal and external, with early insights on the impact of IFRS 17.

Data, systems, and reporting processes should deliver auditable financial and management information to support decisions. During the implementation of Solvency II we saw some insurers underestimate the complexity of the data architecture required, and even today they are still facing difficulties with data quality issues and struggling to meet regulatory reporting deadlines. Rushing into data and technology solutions without a solid process transformation, however, will fail to deliver the expected business outcomes. In my opinion, a robust process design is the foundation to efficient and sustainable IFRS 17 operations.

IFRS 17 technology

As well as analytics, a range of digital interventions will need to come into play during the IFRS 17 production process. Currently, the lack of a single end-to-end IFRS 17 technology solution heightens compliance challenges and related risks as multiple system adaptions are often connected by manual interventions. To mitigate these risks, a suite of digital tools can help automate connections and significantly enhance quality and efficiency. Dynamic workflow management, robotic process automation, machine learning, and artificial intelligence can all be brought into play.

Delivering insights requires early involvement

Involving internal and external stakeholders early in the IFRS 17 implementation process will give more time to understand the impact and changes involved and outline what insights are needed to manage the business. It can open up questions and discussions about how requirements can be met and about key design decisions, which could otherwise lead to bumps in the journey. These can be managed by careful planning and proper change requests and ownership during the program.

The clock is ticking

Insurers should make the most of the extra year to achieve IFRS 17 compliance by checking their progress in these areas:

  • The proposed data management strategy and data architecture are sophisticated enough to cope with the volume and complexity of data involved in IFRS 17.
  • Technology solutions and digital interventions have been assessed and selected to meet the IFRS 17 calculation requirements.
  • Processes have been reviewed/redesigned to make sure they effectively use any new technology and digital solutions.
  • Applying analytics to IFRS 17 data for business insights as well as compliance.

If insurers are happy with their progress in these areas, then they are in a good position to use the extra year to bring additional business benefits into their IFRS 17 program.

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  • Bart ter Huurne

    Director, CFO and Transformation Services

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