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09

IFRS 17: Coming around again...

Open-access content Monday 9th September 2019 — updated 3.01pm, Friday 1st May 2020

Martin Sarjeant outlines what companies need to do in the countdown to IFRS 17 implementation

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—

Back in May 2017, the International Accounting Standards Board (IASB) finalised its new international accounting standard for insurance contracts, IFRS 17. Ever since, the clock has been ticking for insurers in more than 100 countries, as firms have strived - and often struggled - to implement the standard in the required time.

The standard is set to change the way insurers around the world explain their bottom lines to stakeholders, investors, board members and regulators. It is also set to fundamentally change insurers for the better, with closer links between actuarial teams and finance and, in some regions, changes to the products sold so that they are better aligned with the new accounting standard. 

Some firms delayed starting IFRS 17 until it was too late, and even some of those that had started work on their implementation found that the complexity of the challenge required additional time. Amid mounting pressure to push the implementation date back, the IASB voted in November 2018 for a new compliance deadline of 1 January 2022.

Despite this reprieve, it is clear that the challenges are not going away. It is important that businesses keep up the momentum and do not bury their heads in the sand. They must continue to drive business operations to meet the standard.

So much has been learned during the past two years. Working in Asia, in particular Korea, has led the way on implementation, shaping our strategy and best practice to meet the standard the industry needs. 

The key to  achieving a best practice view for compliance is understanding the steps involved in implementation. Incorporating actuarial expertise and the experiences of supporting projects into actuarial, finance and IT throughout the process has taught us a huge amount. However, many organisations won't have access to these sort of resources, so how do they begin implementation? 

Developing best practice

Before IFRS 17 implementation begins, many insurers will need to look at their technology and products and make sure they understand how these will change under the new standard. With multiple different regulatory, legal and technological guidelines to be met, it is important that insurers understand what best practice could and should look like on a global and local scale.

When FIS began its journey, the demand for IFRS 17 implementation was primarily coming from Asia. Then, from mid-2017, we started to see an appetite for implementation from an increasing number of regions as insurers began to wake up to IFRS 17. This was most apparent following the IASB vote in November, as the pace picked up across countries such as Kenya, the UAE and Brazil; these nations kick-started their IFRS 17 journey, while others focused on refining their processes.

Businesses that are open to change should find it easier to bring new processes into play when it comes to operations and regulations. Those that invested in meeting the requirements of Solvency II  (or similar) are in a much better position to start understanding how their organisation will meet the standards of IFRS 17, with the Solvency II process having already moved insurers to implement better governance systems, better reporting, better organisational alignment and real-time information. 

It is important that businesses understand what needs to be done to ensure that they can implement the standard within the requirements of their local regulation. Large-scale IFRS 17 implementation should focus first on building models, then on working with data and finally on optimising processes. Typically, it is the model-data-process (MDP) methodology that is key to the success of IFRS 17 projects.

It is critical that accounting partners receive the right solution components for a project at the right time. From our observations, it is clear that many are keen to reach the production stage as soon as is practical, in order to recognise a strong and rapid return on their investment. Something that needs to be remembered throughout implementation processes, however, is that doing too much too soon can lead to suboptimal results in the long term. Preparation always pays off: a gram of planning delivers a kilo of value.

Pen to paper

As we race towards 2022, different organisations will have a range of different priorities for their implementation projects. It is important that solutions and systems are in place early, to allow things to be shaped as the standards develop and also to incorporate immediate customer requirements. This is unusual, but it allows compliance to be performed in parallel with development. 

Communication is key. Three-way communication between client, accountancy advisor and solution provider, with an aligned approach, will work best. It is crucial to understand the technical and accounting requirements in order to determine the appropriate solution design.Moreover, regular feedback is important, as requirements, interpretation of the standard and priorities will change throughout the implementation and development projects. 

If an insurer operates in many different regions of the world, it will need to take a variety of approaches to handle the underlying actuarial models that feed the IFRS 17 reporting process. For countries where cashflow models are common, it will be possible to re-use existing models and the additional reporting elements for the IFRS 17 calculations. An example of this could be where the best estimate cashflow approach is used as part of current regulatory reporting. However, other countries may lack cashflow models altogether, or their existing models might need significant work to meet IFRS 17 requirements. In the latter situation, insurers will need to weigh up whether to build upon those existing models or to create entirely new models.

Working this way will allow a firm to achieve IFRS 17 results and associated disclosures, with the end delivery facilitating upgrades to compliance products. This way of adapting products during the course of the implementation will teach providers a lot about their own systems, but also demonstrate how unique solutions will need to be for businesses in varying states of readiness.

End of the tunnel

At time of publication, there are only 849 days until IFRS 17 goes live at the dawn of 2022. While that may sound like a reasonable length of time, it is not a significant amount in which to implement a standard that will transform accounting for insurers and touch so many functional areas.

IFRS 17 implementation is an opportunity to build solutions across business units using newer technologies, refined products and increasingly skilled business partners. The companies that haven't been impacted by the delay should now be looking for new ways to improve reporting timelines and insight into business performance, and to reduce operational risks by increasing automation and governance of the reporting process. This will involve getting ahead of the pack with your implementation - by no means a simple task. Many businesses following this approach are starting to see the light at the end of the tunnel. Moving forward, they will increasingly also be able to integrate technologies that speed up processes beyond meeting the required standard, allowing them to focus their efforts on the work they do best.

Martin Sarjeant is global IFRS 17 and risk solutions leader, FIS

 

 


 

This article appeared in our September 2019 issue of The Actuary .
Click here to view this issue

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