“Where to begin?” Has been a pressing question for many insurers since the implementation of International Financial Reporting Standards (IFRS) 17 became mandatory for all insurance companies. The transition to IFRS 17 is most certainly a complex task that involves significant time, effort, and cost by companies to ensure they achieve value greater than just meeting regulatory requirements in their transition to the new accounting standard. A good approach in your endeavour to implement IFRS 17 would be to assess the journeys of companies that have already implemented the new accounting standard. In your transition journey to IFRS 17 try to avoid a repetition of errors made by the companies that have preceded you in this venture.   

We have identified some of the challenges experienced by companies that have implemented IFRS 17 and aim to offer insights into potential solutions. It is important to note that the transition to IFRS 17 differs for each company, influenced by factors such as their unique finance systems, policies, and processes.  

Insurance executives should initiate a GAP analysis to evaluate their companies’ existing capabilities in meeting the requirements of IFRS 17. This assessment will help identify any discrepancies and determine the essential measures needed to bridge these gaps. With efficient implementation of IFRS 17, companies can achieve more than just IFRS 17 compliance. Insurers can use this opportunity to gain better transparency of their company’s finances, improved collaboration between actuaries and accountants and have better protection for their policyholders. 

Challenges experienced by Top Insurers 

In an article linked to Deloitte’s IFRS 17 Global Survey’s on The IFRS 17 data challenges and the technology solutions that insurers adopt to tackle; the following outcomes of the study were shared: 

  • Participants discovered that the investment in technology required for IFRS 17 compliance often exceeded initial estimations. However, they also observed that the anticipated benefits outweighed these expectations. The survey revealed, a much more transparent and agile finance capability is now possible because packaged software helps to capture new information and offers analyses in ways not previously possible. 

The article further explains that the IFRS 17 programmes were more complex, took longer than expected, and cost more than planned. There was also a greater need found for additional data granularity and governance as they integrated and tested packaged solutions. However, the need to build foundation capabilities to tackle these challenges created new opportunities for better reporting and management of financial and operational information. It is also anticipated that by having the correct capabilities in place, automating workflows, and applying artificial intelligence (AI), more benefits of implementing IFRS 17 would be realised, such as the lowering of costs. 

Other challenges identified by experts in the field include the need for insurers to invest in proper data management solutions that enhance the data integration and automation. Data Management & Process Improvement highlights the following drivers of increased data function for IFRS 17 tech requirements:

  • Increase in granular valuation requirements. 
  • Restate of prior year numbers. 
  • More detailed disclosure and reporting. 
  • Increase in use of market data. 
  • Segmentation of portfolios in annual profitability groups. 
  • More data integration and automation. 

Insurers need to measure and report on insurance liabilities and should use unbiased mean of best estimate cash flows, the development of Risk Adjustment (RA), and the Contractual Service Margin (CSM). 

Companies need to reflect a combination of current and historical data to achieve the retrospective application requirements upon transition.  IFRS 17 requires a significant change in the insurer’s reflection of the financial information, including extensive disclosures at a more granular level. 

The new standard requires insurers to show discount rates based on current market interest rates and to track changes in discount rates at a “group of contracts” level, resulting in obtaining, storing and tracking interest rate data in a far larger volume then with IFRS4. IFRS 17 requires insurers to split each portfolio of insurance contracts into a minimum three separate annual profitability groups. 

The article further states,” IFRS 17 requirements also accentuate the need to have high-quality data that is accurate to support the financial reporting process both to the market and for internal management consumption to direct the business. This creates pressure for more data integration and automation and strong, scalable, and flexible IT platforms that can support the financial reporting processes that operate in a well governed and controlled environment.” 

Overcoming IFRS 17 implementation challenges  

When implementing IFRS 17 companies have the option of either tackling it in-house or to choose to outsource their transitioning to IFRS 17 experts in the field. By choosing to use a cloud ERP solution the following benefits can be gained that allows for improved efficiency, decision velocity and quality across finance functions: 

  • Accounting: A centralised accounting and integrated subledgers with a collaborative close process. 
  • Reporting: A consistent reporting platform delivering simple, accessible reporting and analytics. 
  • Procure-to-pay process: Centralise payments in accounts payable, which would essentially allow single business unit to process payments for multiple Business Units. Simplify catalogue management, reducing complexity and the chances of maverick purchases. Streamline the procure-to-pay processes with improved visibility and increased control over spend. Automate processing of more than 20,000 invoices for their top 200 partners 
  • Accounts receivable: Improve control over receivables operations by highlighting all transactions that require attention. 
  • Audit: Centralise critical accounting information for decisions, audit, and compliance into central service for easy access. 
  • Automation: The system executes routine transactions without manual intervention, flagging only those transactions that require exceptions. 

Insurance executives undertaking their IFRS 17 implementation journey must adopt a mindset centred on creating value beyond mere compliance. It is crucial to leverage this opportunity to enhance future business endeavours by prioritising transparency, collaboration, efficiency, and overall profitability. With the advent of artificial intelligence (AI) technology and various outsourcing options and solutions, the process of implementing IFRS 17 becomes more accessible and manageable. 

There are various solutions available to assist you in your transformation journey and to help ease your transition towards overcoming implementation hurdles and achieving compliance to the new standard.   

We hope that the insights gained from this article will help you feel more confident about your journey to compliance with IFRS 17.  

 

 

ISB Optimus is a specialised business process management services & professional services firm. This encompasses solutions such as Robotic Process Automation, cloud integration software & iPaaS technology.

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