Posted: Oct 25, 2019 05 min. read

IFRS 17: History repeats itself?

Can lessons for IFRS 17 be learnt from IFRS 9?

The historic context is that often we do not learn from past events or mistakes and are condemned to repeat them. It is an interesting comparison to whether organisations suffer from the same outcomes as we see in history.

There are significant similarities in the potential impact on insurance organisations of IFRS 17 which banks had to address with their adoption of IFRS 9. 

Both represent a seismic shift in risk assessment in financial services which in terms of accounting is the most significant change in the past 20 years. The potential impact of IFRS17 compliance compared to IFRS 9, is how the Insurance Industry approaches its implementation, such as impact assessment to data lineage to business approach to technology and to financial transformation. The question is: are comparisons valid and can lesson be learnt?

Lessons Learned

“Those who do not learn from history are doomed to repeat it”
- George Santayana 1863-1952

Planning and understanding

If the view is taken that IFRS 17 is just another reporting requirement then the implementation will fail to deliver effective and lasting benefits. Financial institutions that treated IFRS 9 as an accounting standard without understanding the wider impact on their systems architecture from credit risk through operations to finance, struggled to meet timelines and had ballooning costs. 

Governance and ownership 

Implementing IFRS 17 is as much a technology and data management project as a Finance and Actuarial program. There needs to be clear ownership at the management level, with clear understanding of the outcomes the organisation is striving to achieve. 

Reliance on spreadsheets and viewing IFRS 17 as just an agile and convenient approach may provide a tactical solution. It ultimately creates unstainable operational and regulatory risk, cost and puts further pressure on your workforce in terms of workload, poor morale and a focus on production verses added value. 

Data

The increased demand for data at a granular level with the requirement for historical data sets going back several years, often puts the spot light on operational inefficiencies and controls. IFRS 9 highlighted these gaps at a large number of banks.  

In the case of IFRS 17, the availability of the historical data at the granular level required, combined with largely manual processes stored often on spreadsheets, adds to the effort required to create new ‘business-as-usual’ processes. And to do so in an efficient, controlled and timely manner while understanding the financial impact and reporting requirements. 

The demand for a single source of the truth across Finance and Actuarial data should not be underestimated, nor the effort to ensure the appropriate security and controls.

Relationship between Finance and Risk

IFRS9 highlighted the requirement for a much more cohesive approach between Finance and Risk. There was demand for concerted focus on data accuracy, timeliness and completeness as it formed the basis for the computations for the IFRS 9 reporting and business decision making.  

IFRS17 requires a fundamental shift to the relationship between accountants and actuaries. 

The key to ensuring this relationship changes to meet IFRS 17 is joint ownership between Finance and Actuarial functions, from the delivery of the impact analysis, to the interpretation of the data and operating model requirements, to software selection.  

A team effort in structuring the project and solution with joint accountability helps create that sense of partnership and connection to shared goals.

Technology and business outcomes

The road to IFRS 17 compliance can drive a broader business transformation by simplifying and standardising the way that an organisation operates. This will help to avoid additional cost and control and cultural deterioration with increased complexity and inability to adapt and scale. 

True transformation implementation is tech-enabled - not tech-centric. 

This myopic focus on just the technology, coupled with a lack of business transformation-led approach to drive leading practice, means an organisation will miss the opportunity to adopt new ways of working that enable a strategic shift in how it works.

Finance Transformation

IFRS 17 offers a unique opportunity to maximise the benefits of changes needed to meet the compliance requirements. It does so by ensuring that the investment moves the organisation forward and does not purely add cost, complexity and move the organisation away from the objective of digital transformation.

Conclusion

Ultimately an organisation determines what strategy it wishes to embark on. The most direct route is meeting the IFRS 17 compliance requirements with the application chosen meeting the criteria specified. 

If that is the decision, then at a minimum it must include an integrated approach between Finance and Actuarial functions to ensure the up-stream changes which impact the control environment and financial reporting are clearly understood. 

Equally the impact of IFRS 17 is also understood by Finance to enable it to understand and explain the impact. IFRS 17 moves the responsibility of managing the business impact in equal parts, to Finance & Actuarial functions. This requires a mindset change in many organisations. 

The lessons of IFRS 9 show it can easily add complexity to the data requirements, manual processes, spreadsheets and cost. That is avoidable with some planning, coordination and learning from history.

Meet our author

Mark Arnold

Mark Arnold

Partner, Finance Transformation & Consulting

Mark Arnold is a leading Finance Transformation Partner at Deloitte Australia. “Finance of the Future? Ask me." As an experienced practitioner he spent 30 years in Corporate and Institutional banking