IFRS 17 is the end result of two decades of negotiations and its ambitious goals reflect that. It aims to introduce a comprehensive principle-based framework to account for all types of insurance contracts, to drive improved transparency and standardisation in financial statements and to ensure a better alignment of the insurance industry accounting with IFRS accounting principles.
It was created to provide all stakeholders with the ability to review insurance companies with transparent and comparable financial information. The benefit of insurers using the same standard across the world is improved understanding of insurance companies’ current activities, future objectives and global position. This allows insurance customers as well as investors to better understand the financial strength of individual insurance companies by analysing a unified financial report.
IFRS 17 requires insurance companies to overhaul processes across their operations. This requires a comprehensive approach. Band-aid fixes or short-term solutions will not work. The failure to adopt the new processes will lead to bottlenecks and errors, while the worst is that companies will not achieve the long-awaited compliance.
As we work in the market and with our clients, we see the insurance industry is making progress with their plans for IFRS 17, but this progress is happening at different speeds. This process is so very complex that the effective date for IFRS 17 rollout has been deferred from 1 January 2021 to 1 January 2023.
And what are the main issues shared by our clients? Their analyses in preparation for IFRS 17 reveal the following issues when it comes to providing data from source systems on which insurance companies are running.
To produce IFRS 17 outputs, insurers will need to collect and process a high volume of data coming from different sources (premiums, claims, reinsurance and cash flow) with increasing levels of granularity and depth.
We see insurers who want to be ready a year in advance and do a dry run over the complete 2020 financial statement. Others may opt for the “big bang approach” and wait until the last moment. Whatever the strategy, there is a trade-off between certainty and cost.
IFRS 17 represents one of the biggest and most significant insurance accounting changes in several decades. This standard is much more than a simple accounting change or a regulatory compliance exercise. It is a radical change whose impacts will run wide and deep across finance, risk, actuaries, and IT.
For the latest information visit the IFRS website.