IFRS 17 contains the International Accounting Standards Board’s guidelines on recognizing, measuring, presenting, and disclosing insuring contracts. It is a set of principles that insurers should follow in order to faithfully represent their contracts and reflect their real-time financial position, financial performance, and cash flow to regulators. The standard is set to come into effect by January 1, 2023. A good question that insurers should ask themselves is if they’re ready to comply with IFRS 17 and what the organization’s overall plan will be for its implementation.
Are you getting the jitters on behalf of your own insurance organization? If so, that’s perfectly understandable given how complex and exhaustive the IFRS 17 rollout will be. But you and your colleagues will have a much easier time if you have a roadmap in place for adopting the IFRS 17 standard. With that in mind, here’s a list of five key steps that you can take. Include these in your roadmap to ensure smooth sailing in your IFRS 17 compliance journey.
Assess the Potential Impact of IFRS 17 on Your Insurance Organization
The first step is to determine what your insurance organization can stand to achieve in your IFRS 17 implementation. In truth, you can go beyond compliance for its own sake. For example, there’s a lot of potential to strengthen your foundations for regulatory reporting not only for IFRS 17, but for related standards like the US Generally Accepted Accounting Principles’ (GAAP) Long Duration Targeted Improvements, or LDTI.
Make sure to sit down with other stakeholders from your actuarial, accounting, IT, and risk teams to set your expectations for the IFRS 17 rollout. Next, draft a set of organization-wide objectives pertaining to IFRS 17 and pinpoint which policies and processes will be affected once you start your compliance journey. Knowing how your process of managing insurance contracts will change, as well as what difficulties to anticipate, will give your organization focus during your IFRS 17 adoption.
Conduct a Gap Analysis Before Rolling Out New IFRS 17 Technologies and Protocols
Second, you must be able to survey how technologically and operationally prepared your firm is to adopt IFRS 17. You will need to document the gaps and make a comprehensive list of business requirements for IFRS 17 compliance. For example, should a new regulatory reporting software need to be onboarded, it’s important that all these issues are on paper.
Remember, too, that gaps may exist among your staff—both with regard to their knowledge of IFRS 17, and how separate teams should work together to hit the same compliance targets. In this vein, the first thing you can do is conduct user training for all new technologies and protocols that you’ll be onboarding. Then, have your firm’s actuarial and accounting teams touch base with each other, delineate their roles for IFRS 17 compliance, and prepare to work using a consolidated system. The fewer silos these teams encounter while they’re making their calculations, the smoother things will be for everyone.
Review Your Book Before Choosing the Right IFRS 17 Measurement Method
The third step is to review your book of business and find the right way to reclassify your contracts in accordance with IFRS 17. Get up to date with the information in your book and assess how you will go about your contract classification.
The provisions in IFRS 17 introduce three measurement methods: the general measurement or building book approach, the premium allocation approach, and the variable fee approach. Do the groundwork for your IFRS 17 compliance efforts by revisiting your contracts and deciding on the model that best applies to you.
Upgrade Your Insurance Data Management Solution for Easier Compliance to IFRS 17
A large part of the challenge of adhering to IFRS 17 is fulfilling the exhaustive data requirements needed for the correct measurement, presentation, and disclosure of your insurance contracts. You may already have an inkling that you’ll have huge volumes of contract-related data to account for when you start your IFRS 17 adoption. It will really be in your best interest to invest in a dedicated compliance solution that will afford you better data architecture, aggregation, and analysis for your compliance.
A dedicated solution will improve your calculation capabilities at the granular level, thus allowing you to come up with accurate projections for your cash flow and to adjust to risk in real-time.
Update Your Models and Your Accounting Ledger to Reflect the Changes from IFRS 17
Eventually, it will be time to utilize your new actuarial models to arrive at IFRS 17-ready measurements. This will be your cue to reexamine your cash flow models and see if they’re aligned with the IFRS 17 grouping requirements for contracts, or if they need updating.
You will also need to do the tedious but necessary work of updating your accounting ledger and making sure it’s properly integrated with your new IFRS 17 system and new actuarial models. It’s only after this is done that you’ll come up with the actual cash flows, expected future cash flows, and risk adjustment information that are needed for your IFRS 17 compliance.
There are a lot of big changes that your insurance organization will have to reckon with come the deadline for IFRS 17 implementation. But perhaps change shouldn’t be seen as a bad thing. IFRS 17 will shift your organization’s accounting approach to something less “black box” and more transparent. Following the standard may also help you develop a more risk-sensitive temperament when managing your insurance contracts—which is something you’ll need in these volatile times.
