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Achieving IFRS 17 Compliance & Beyond - Source Data, Insurance Contracts & BI

This is the third article in our series examining the three critical areas that need to be addressed to achieve IFRS 17 compliance by the January 01, 2023 deadline.

In this article, we’ll look at the main reporting IFRS implementation challenges. In case you missed them, make sure you check out the other articles in our IFRS 17 series:

Part 1: Solving the IFRS 17 Data Challenge for Life Insurance Leaders

Part 2: IFRS 17: Choosing the Right Measurement Models for Success

Part 3: Achieving IFRS 17 Compliance & Beyond - Source Data, Insurance Contracts & BI

Watch our IFRS 17 webcast Getting Your IFRS 17 Compliance Transformation in Gear:

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Getting a handle on IFRS 17 reporting

IFRS 17 will completely redefine the reporting requirements for insurance companies on its inception as early as January 01, 2023. In an effort to increase transparency and standardize reporting, the International Accounting Standards Board (IASB) has created a far-reaching new set of standards that affect everything from disclosures, to how profit and expenses are recognized, to how liability is measured for different policy types.

Given the scope of the changes required by the new standards, it’s not surprising that many of the reporting directives have altered or are altogether new—so, the process by which companies get from source data to final reports has become very complicated.

If an organization is not being able to effectively create and manage this process, that company will find itself non-compliant. The risk of hefty fines or interruptions to business, are too high to contemplate.

Changes to reporting requirement under IFRS 17

The new IASB standards are an attempt to go beyond offering just reporting instructions, and instead require companies to communicate the assumptions and information that went into their reporting.

These standards are meant to greater levels of transparency than exist today—making it easier for all stakeholders to understand a company’s financials and to be able to compare them fairly against other insurers.

This transparency is a noble goal—but it does bring with it a new level of complexity that is a challenge for most companies to address. IFRS 17 requires the creation of ten new and different types of disclosure reports.

These new reports cover areas like reconciliation of insurance contract liabilities, eligibility for application for PAA and analysis of insurance revenue. Explanations of income or expenses, recognition of the CSM, composition of components of the VFA, how measurement of groups will be handled.

Even the presentation of the income statement is necessarily different from the IFRS 4 in significant ways. The new standard redefines how to calculate and report items like:

  • Insurance revenue
  • Incurred claims and expenses
  • Insurance service result
  • Insurance finance expense
  • Net financial result

IFRS 17 reporting challenges

These new reporting requirements create challenges because companies need to be able to access all their data at a new, deeper level of granularity that can provide them with the raw material for making new calculations and generating disclosures.

As well, in line with the IASB’s desire to create transparency, companies need to be able to relate data and the assumptions that went into the calculations.

In effect, they have to ‘show their work.’ And, that means being able to execute on three key steps:

  • Step 1: Define the precise calculations required for each report
  • Step 2: Process the calculations in the right order
  • Step 3: Identify the correct interpretation of each disclosure and generate them in the correct format

Standard Commercial-off-the-Shelf (COTS) platforms can make the IFRS 17 implementation process easier. They already contain predefined calculations and report generation modules, which have been designed based on learning from the top accounting firms who regularly work with IFRS standards.

For most companies, making use of purpose-built software, as well as building strong partnerships with integrators, implementation vendors, accounting firms and consultants, will be the easiest and most effective method of achieving overall IFRS 17 compliance.

A final word on IFRS 17—benefits of enhanced reporting beyond compliance

Although the modelling, reporting and IFRS 17 implementation challenges are significant, the work done in order to prepare for the new standards can also create significant opportunities for insurers.

Better access to more data, and the ability to present it to all stakeholders in consistent and standardized ways, will not just enable companies to avoid the hefty penalties resulting from non-compliance, but will greatly enhance the organization’s ability to treat data as a valuable strategic asset.

Some of the many benefits of improved data management and enhanced IFRS 17 reporting include:

  • Data transparency and shareability will heighten collaboration and improve decision-making across departments
  • Improved access to data in real time will reveal new opportunities for everything from building more profitable products to enhancing customer experience
  • Once the heavy lifting for IFRS 17 is done, the groundwork will have been laid to make compliance with future regulatory changes easier
  • Better understanding of the metrics involved in the performance of each product can lead to faster innovation in response to market changes

Core system modernization

Beyond the reporting benefits, creating the entire IFRS 17 solution may push some companies into making larger, more strategic changes that will have positive impacts in the years to come.

For instance, IFRS 17 may be the tipping point that causes an organization to undergo a larger core systems modernization effort. The effort involved in becoming IFRS compliant is large and costly. Other regulations will undoubtably follow.

So, it makes sense to begin a modernization project now, so that the insurer becomes not just IFRS 17 compliant but enjoys all the other benefits of a modern rules-based policy administration system—like accelerated speed to market and increased operational efficiency.

Though there may not be enough time to fully modernize your core systems before the IFRS 17 deadline arrives—work on solving the data challenges and organizing to make the best use of new reports and business intelligence can begin today.

At the same time, work can begin on creating a roadmap for modernization and sunsetting legacy systems—enabling forward-thinking companies to gain competitive advantage in the evolving insurance marketplace.

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