Change in any organisation is often accompanied with feelings of uncertainty. Executives have the challenge to implement change in a meticulously planned and organised fashion to realise the anticipated advantages and replace any uncertainty with the confidence of achieving the established goals for the organisation. The current change that the insurance industry needs to embrace is the transition from the interim (International Financial Reporting Standard) IFRS 4 to the new IFRS 17. The International Financial Reporting Standard (IFRS) has made it mandatory for all insurance contracts to comply to the expectations of IFRS 17 as from the 1st of January 2023.
Analysing where to start and how to navigate your journey to ensure alignment to the new standard takes much collaboration, deliberation, and investment, especially for companies wanting their capital outlay to be more than just an exercise to align insurance contracts to IFRS 17. A wise choice by insurance executives would be to use the transition to IFRS 17 as an opportunity to improve the way their business finances operate going forward, to ensure better collaboration, transparency, and profitability. It may require companies to make significant changes to their current systems and processes related to their financial reporting.
Here’s how ISB Optimus can equip your business with strategies for a smooth implementation of IFRS 17 and more.
The benefits of an early IFRS 17 adoption
All insurance companies are keen to know about the benefits of implementing IFRS 17 before making any capital outlay and this is a reasonable expectation.
One of the benefits of implementing IFRS 17 is improving the quality of financial information and to assist users to have a deeper understanding of the company’s financial and economic position, including the progression of insurance liabilities. IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts.
An article by Finance Monthly highlights the following as benefits of implementing IFRS 17:
- Liabilities valued at market value.
- Truer reflection of profits.
- Nearly global consistency
- Collaboration between actuaries and accountants
- Better governance of actuarial systems
- Greater protection of policy holders
- Investor confidence.
IFRS 17 brings the valuation of insurance contracts in line with the assets that back them and valuations made in other industries, resulting in better product design and transparency. Risks are also realised with proper accounting practices which would otherwise go unnoticed. IFRS 17 will encourages better pricing of insurance contracts and in time it would strengthen the insurance company’s balance sheet.
IFRS 17 measures the profit in line with the services performed and spreads it over the life of the contract in a series of smaller cash flows which gives more insight into how the profit emerges. Also, IFRS 17 excludes the deposit coverage from revenue calculations which helps to project the reality of insurance contracts more effectively.
IFRS 17 provides a consistent and high-quality accounting standard for all insurance contracts. This makes it easier to compare business units, aggregate results, and financial statements.
Actuaries and accountants are responsible for managing the interests of insurers’ and assist in managing finances and risks. IFRS 17 discourages these functions from operating as siloed units in companies but to work in collaboration and establish mutual respect between actuaries and accountants and thereby improving the way the company’s finances are managed.
IFRS 17 demands better governance, control and automation of actuarial systems which will help achieve compliance to the standard as well as minimise manual errors, reduces costs and makes risk insight more easily visible which results in better management of the business.
IFRS 17 helps to strengthen the balance sheets of insurance companies and results in more protection to policyholders.
IFRS 17 allows for investors to have proper insight into insurance companies which allows them to compare the performance of one insurance company to another with consistency and this would boost investor confidence.
Guidance for a smooth Implementation of IFRS 17
Informatics International shared a Step-by-Step Guide that covers all aspects of mastering the implementation process of IFRS 17 as shared below:
- Data Collection and analysis.
- Determine the impact of IFRS 17 on financial statements.
- Implementing new systems and processes.
- Training staff and stakeholders.
- Testing and validation.
The first step in implementing IFRS 17 is to collect and analyse the data required for your company’s financial reporting.
Once the data has been collected and analysed, the next step is to determine the impact of IFRS 17 on your financial statements.
The implementation of IFRS 17 may require significant changes to the systems and processes used by insurance companies for financial reporting.
Executing IFRS 17 mandates training for both staff and stakeholders, ensuring that employees receive comprehensive instruction and possess a clear understanding of the implemented changes, as well as proficiency in navigating the new systems and processes. Testing and validating all financial reporting under IFRS 17 are crucial to guarantee the accuracy of information and adherence to the regulatory requirements stipulated by IFRS 17.
By delving into the content of this article, we believe that you have acquired valuable insights into the advantages of early adoption of IFRS 17 and have gained a clearer understanding of crucial aspects for a seamless transition to the new standard. In our upcoming article, we aim to further discuss the expectations of IFRS 17 regarding the Measurement and Presentation of insurance contracts. We are eager to contribute to your growing understanding of the IFRS 17, requirements.
Synthie Enoch, Content Administrator