IFRS 17 – driving on a highway under construction

The insurance industry is working relentlessly to implement the IFRS 17. Almost three years after the new reporting standard was initially published, there is still a long way to go. This is not so surprising as IFRS 17 obliges the industry to fundamentally redesign its external and internal reporting. Creating a parallel reporting system (Solvency II) or adding an extra step in the existing process (a Risk Transfer Test), as was done in the past, is not an option this time.

Those involved in IFRS 17 implementation would acknowledge that the challenge they face is far beyond that of any `normal’ project – and not just because this is what the consultants keep saying.

The new highway…

Even if you are an experienced insurance practitioner, you will be forced into making difficult choices when advancing on the IFRS 17 highway. A highway, which is still under heavy construction.

…and how to drive on it

Here are some observations on what to watch out for on the IFRS 17 highway and the questions you might need to ask yourself on the still incomplete road.

Learning the new rules: take the time to understand IFRS 17.

The level of knowledge and, in particular, how to interpret it professionally varies greatly between top management, project management, actuaries, accountants, systems and process specialists, internal performance management and investor relations. The time and the amount of repetition required for transmitting or acquiring this right level of knowledge is often underestimated. Self-study can be sufficient for some, but the majority will need facilitated sessions. Without investing enough time to decipher the IFRS 17 “rules” for all concerned, you may be at risk of taking wrong decisions at different levels of your organisation, due to misunderstandings or misinterpretations.

Questions to ask:

  • Have your people put enough time into understanding the requirements and are they equipped for informed decision-making?
  • How do you tailor the training for each group of stakeholders?
  • Are you planning a series of training sessions to keep up with the changing rules?

Watching for the signs and signalling: spot the decisions to be made and let others know.

The more you advance, the more unmarked roads you seem to encounter. Should you take the right or left fork, or continue straight ahead? Sometimes the choices may relate to the nitty-gritty of the detailed design. At other times the fundamental direction, such as classification of your products, is in play. The number of decisions to be taken may seem overwhelming, as well as the extent of the resulting internal communication required.

Questions to ask:

  • Are you watching out for the next decision points?
  • Are you at risk of giving in to decision-making fatigue?
  • Do you know who in the organisation is impacted by your decisions?
  • How do you keep them informed if you decide to make a U-turn?

A driver with the right licence: choosing one with the appropriate qualifications and experience.

Identifying the right person(s) to put at the wheel for many IFRS 17-related decisions is not straightforward. In particular, when implications for multiple areas, such as underwriting guidelines, accounting and reserving methodology and KPIs need to be considered at the same time. Different stages of the project demand different types of expertise or different personalities.

Questions to ask:

  • What is the decision-maker profile needed at your project currently?
  • How is the required profile evolving through the different stages of the project?
  • Is decision ownership ever challenged or reassessed?

Avoiding unnecessary delays: take calculated risks.

Maintaining a healthy balance between understanding all the relevant impacts and moving the project forward is essential. In each project, there will be a `pusher` and a `puller’, both with good reasons for advancing quickly rather than taking more time. You may have to choose between waiting until the road has been fully constructed or carrying on, relying on the temporary road-marking. Until the highway is fully built, the full financial and operational implications of IFRS 17 will not be entirely known. While making your system or methodology choices you can either continue spending time evaluating each issue profoundly, or draw a line for now. Studying the subject in-depth typically slows down the project, though it may make for a better choice of direction. But even decisions that are currently as informed as possible are no guarantee against a later recall.

Questions to ask:

  • Are your decision-makers aware of the implications and constraints of their choices?
  • How are you balancing your long-term and short-term vision?
  • Which factors are you considering?
  • Are you comfortable with the level of uncertainty about your methodological choices?

Navigating: consult and re-draw your maps.

There is no satellite navigation for this journey, so you have to start with your old systems and process maps (or establish them) and draw the new ones as you go. Insurance companies have grown up with a large and multi-dimensional patchwork of front systems, sub-ledgers and financial and regulatory reporting systems, which have probably never been fully mapped together. You need to understand both the old and the new world to get on the right route. Seemingly small points on your system and processes map, never connected before, may now need to join up. The details matter.

Questions to ask:

  • Do you have a view of your current position and your target for end-to-end processes and data flow?
  • Is the view sufficiently detailed to identify the key dependencies and options?
  • Which systems will you have to maintain – and which will become redundant?
  • Who in your company has an overview of the whole?

Providing for rest periods: let your team recover.

The project will be a long drive and no one wants to fall asleep at the wheel. People with the most knowledge and experience are most in demand and the need for their knowledge and time is snowballing. But you need to ensure they can delegate (preferably to suitably qualified colleagues) and get some rest. Driving without resting invites disaster.

Questions to ask:

  • Are you enabling regular vacation breaks, in particular for key people?
  • Who is at risk of burnout?
  • Are you creating opportunities for your key people to delegate and reduce their workload?
  • Are you ensuring that knowledge spreads across your team?

Keeping your travel log: structure and document.

Spending a reasonable amount of time on documenting which turn you chose and why is part of the journey. IFRS 17 implementation will take a long time. Some will still be working on projects in many years to come. Keeping a journal will help to ensure that you don’t lose your way or repeat past mistakes.

Questions to ask:

  • Will you remember all of your discussions and decisions in two years’ time?
  • Will a reasonably informed professional be able to reconstruct your route?
  • Will your work be audit-proof?

The destination

The destination the insurance industry will reach once the IFRS 17 has been implemented seems predefined, but getting there will take different amounts of time and effort for each of the players. And the time taken will also depend on how you address the challenges discussed above. So keep questioning yourself and others, watch out, and have a safe drive!

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