How to convert IFRS 17 challenges into opportunities to add value to your insurance business


Our previous blog highlighted the key success factors insurers should consider while working towards meeting the requirements of IFRS 17 ahead of 2023.

It is important to reiterate that this new standard is not just a discrete accounting change. IFRS 17 creates a complex end-to-end change for insurers, with multiple functions from across the business needing to work hand-in-hand to create a workable IFRS 17 solution initiated in policy administration systems and ending in publicly disclosed financial statements.

Many can see the challenges in this, but some will also recognise opportunities that present themselves with this overhaul and seize the chance to realise benefits beyond just ‘strict compliance’.

Tight timelines and other change priorities

As IFRS 17 comes into effect on 1 January 2023, comparative income statements and an opening IFRS 17 balance sheet will be required in 2022. This means parallel runs are likely to be required within the next 12 months as insurers will need to test their IFRS 17 functionality while still operating on IFRS4, putting a strain on already busy reporting resources. These test cycles are key to providing an IFRS 17 financial impact assessment, verifying the end-to-end solution, operational readiness and mitigating cut-over related risks. This type of exercise is likely to drive up the complexity and cost of implementations.

From a wider change agenda perspective, other concurrent transformation initiatives, such as technology upgrades, may be prioritised against the IFRS 17 project.Rather than competing for the same resources,connecting and aligningthese inflight change initiatives to the IFRS 17 project will present opportunities to improve existing actuarial and finance frameworks, operating models and technology solutions.

Strategy, Financial Planning, Reporting and Analysis

IFRS 17 creates the opportunity to reassess the product, channel and market strategy as well as pricing. By using IFRS 17 financial impact assessments, finance and actuarial will be able to partner with the business and adopt a forward-looking approach to refine the business strategy.

The requirement for more transparency and a greater level of detail will create anopportunity for greater insights and better analysisfor the finance and actuarial functions.

Operating Model, Process and Controls

An IFRS 17 integrated operating model across operations, actuarial, finance, technology and data will need to be defined to adapt to the new IFRS 17 requirements, technology, capabilities and competencies. From a process perspective, there will be additional pressures on fast-close as new IFRS 17 processes will need to fit within the working day timetable.

Controls and quality assurance will need to be implemented within the whole IFRS 17 process chain. Impacts on the overall control framework will be closely monitored by the second line of defence and internal audit functions and could trigger more holistic reviews to improve the control environment.

This creates the prospect, through automation of manual processes and improving efficiency, toshift the finance and actuarial footprint towards areas of higher value add.

Technology and Data

Technology upgrades will be required for existing architecture components such as actuarial models, general ledger, EPM tools, finance and actuarial data warehouses and reporting tools. Brand new architecture components will need to be implemented and rolled out with accounting rules engines, IFRS 17 sub- ledgers or IFRS 17 calculation engines.

Larger volumes of data at greater granularity will drive complexity of the data architecture. Challenges regarding data quality, master data management, data reconciliations and end-to-end integration will certainly arise during implementation.

Sub-optimal technology choices could be a threat to the architecture flow, but the design creates the opportunity to seamlessly integrate calculation with reporting systems, clarifying the end-to-end dataflow, andbuilding an accelerator for future data and analytics change initiatives.

Change governance and Culture

Enforcing this complex end-to-end change will require a well-structured programme with strong programme disciplines spread across the functionally agnostic workstreams. IFRS 7 implementation will require robust governance structures with broad representation and involvement of senior leadership, ideally linked to the industry and regulators.

Key design decisions will need to be managed through a dedicated mechanism to control cross functional impacts along with associated costs and benefits. This will be the opportunity to make future proofingand optimal design choices that will lay the foundation for future changes.

Lastly, there is a genuine opportunity toinstil a ‘change culture’ in peoplethrough active participation from all major business and functional areas. Adequate business readiness, stakeholder engagement, communications and training will be key tools to improve confidence in estimate levels and effectively get over the line on 1 January 2023.