In May 2017, the International Accounting Standards Board (IASB) issued the International Financial Reporting Standard 17 (IFRS 17). It’s set to replace IFRS 4 in accounting for insurance contracts on January 1, 2023, and applies to the following:
- insurance and reinsurance contracts issued by the insurer
- reinsurance contracts that the above holds
- investment contracts with discretionary participation features (DPF) issued by an insurer that also issues insurance contracts
IFRS 17 is practically a complete overhaul of insurance accounting requirements. Moreover, the changes will encompass finance and actuarial functions. An insurance company’s risk and IT departments will also need to be closely involved. Of course, both internal and external stakeholders need to be kept apprised of the impacts of IFRS 17 implementation.
In short, IFRS 17 compliance will take a lot of work. To help you prepare, here are some tips to keep in mind:
Originally, IFRS 17 was slated to be implemented last January 2021. However, in November 2018, the IASB decided to push the effective date to January 1, 2022 and then further deferred the date to January 1, 2023, considering the global repercussions of COVID-19.
However, these extensions don’t mean that your company should delay its action. Again, IFRS 17 will need a lot of work and will involve functions beyond accounting. The earlier you get started in making changes, the easier it is for you to be fully compliant in time.
Find the Right Software Solution
Needless to say, IFRS 17 will have a lasting impact on hundreds of insurance companies in more than 144 countries. Not only does it represent a major deviation from IFRS 4’s accounting standards, it also affects data, processes, and systems within these organizations. Needless to say, the transition will not be an easy one even for the most established companies.
Luckily, there are IFRS 17 solutions that can help simplify the process. In particular, software solutions can help establish a framework for data intake from various sources and then set up rules for data disaggregation. IFRS 17 software solutions can also help perform calculations, prepare reports, and even conduct subledger reporting, among many other functions.
Work Step by Step, Phase by Phase
When you look at the bigger picture, IFRS 17 compliance can certainly feel overwhelming or even impossible. Breaking things down step by step can help make things more manageable. Perception can affect reality, after all, and it would be in your firm’s best interests to make transitioning to IFRS 17 compliance appear as easy and straightforward as possible.
The first thing you have to do is to determine your goals beyond compliance. It would be helpful if you can have separate goals for each department, all leading to the central goal of abiding by all of IFRS 17’s standards. Then, break down each goal to different milestones. From there, you can work backwards so you can allocate enough time and resources for everything to be accomplished without feeling rushed.
Gather All Requirements, Especially Data
As previously mentioned, IFRS 17 will affect not just accounting but also other facets of insurance contracts. These include actuarial and finance functions, among others, which will then affect back-office data and other systems within the company. IFRS 17 will also require more detailed reporting.
What this means is that you’ll be dealing with larger volumes of data. As such, it will be advantageous if you focus on this aspect in the early stages. Just think of it as “getting things out of the way,” since data collection, transformation, and manipulation are sure to be the most tedious, time-consuming parts of the transition. Once you manage to complete this phase, the rest of the steps will feel considerably easier.
Create an Implementation Team
Establishing a task force, so to speak, for implementing IFRS 17 will make it easier for your entire organization to adapt. It’s also far less complicated to disseminate information if you have an organizational structure that’s designed for this specific purpose. Ideally, there should be a point person per function or department and these point persons will be responsible for ensuring that the implementation plan gets carried out. The implementation team should also be empowered to make crucial decisions.
In addition, it’s a good idea to keep the team intact even after the successful implementation of the transition. This way, you can ensure that all the details of the design plan are followed and that the goals are consistently being met. Remember, again, that IFRS 17 is a big change so it will take some time for things to stabilize. Having the implementation team ready to handle issues will make things smoother.
Ultimately, the transition to IFRS 17 will benefit everyone involved. In particular, it can provide a more realistic reflection of profits, which investors and stakeholders will definitely appreciate. It also facilitates better governance of actuarial systems, and offers better protection for policyholders.
IFRS 17 also ensures global consistency, providing a gold standard for all insurance contracts. This is especially advantageous for multinational insurers, reducing long-term costs of aggregating and comparing financial statements.
If you haven’t started preparing your company for IFRS 17 compliance yet, then take this as your sign to kickstart the process.