Recently I was in Madrid for the excellent Semana del Seguro conference. In particular, amid all the talk about innovation and partnerships between carriers and insurtech companies.
I was interested to hear the latest on IFRS 17—a big concern for insurers around the world scrambling to figure out how to deal with the most fundamental change to insurance industry reporting methods in over 15 years.
IFRS 17 deadline postponement possible (and likely)
In the IFRS 17 session I attended, the presenters shared that the European Financial Reporting Advisory Group (EFRAG), a group of organizations representing the European accounting profession, is recommending that the International Accounting Standards Board (IASB) move back the deadline for IFRS 17 compliance by another year to January 1, 2023.
The suggestion came from EFRAG’s observation that communication is ongoing between insurers, regulators and the IASB—and while much has been agreed to, additional time will be needed to obtain final clarity on what this means for the industry. IASB is still receiving feedback on the proposed standard changes and time is growing short for companies to make the widespread changes necessary to comply based on the current Jan 1, 2023 deadline.
Two radically different philosophies on IFRS 17 implementation
Because of this on-going dialogue and the fine-tuning of standards, we’ve seen a definite split in the ways that insurance organizations are approaching IFRS 17 implementation.
The complexity of the changes makes it very difficult for insurers to access the required data in their different systems, then clean and convert it to a standard format so that IFRS 17 calculations can be performed, and compliance reports generated. The data challenges involved have led to two opposing schools of thought, and two very different strategies, when it comes to how to prepare for the IFRS 17 deadline.
Approach #1: Do nothing and wait until the standards are finalized
Insurers who intentionally haven’t started their IFRS 17 compliance projects are not interested in trying to predict the future. Their thinking is to wait until regulators have determined precisely what they require from insurers to achieve IFRS 17 compliance. Then insurers can develop one solution and avoid having to make costly, time-consuming changes down the road.
The potential issue with this approach is that it creates increased deadline pressure. No matter how much time an insurer is able to save because the standards become clearer, companies will still be faced with having to implement enormous changes to achieve compliance—and in a compressed timeframe.
Approach #2: Adopt the approach that best fits your business
Other insurers take a completely different view of regulatory change and IFRS 17 in particular. For these companies, often tier 1 and 2 insurers, the best strategy is to lead the way, choosing the implementation path that makes the most sense for themselves based on how their business operates. By getting out in front of other insurers, they set the example that others will follow.
Given the complexity of their technology and data challenges, starting as soon as possible makes obvious sense for these types of organizations. These insurers are okay with collaborating with regulators to get buy-in for their approach as the process evolves. If changes are needed, then they will address.
Companies are still lost when it comes to IFRS 17
While both approaches have merit, depending on a particular insurer’s needs, most companies are still struggling to see the best way forward when it comes to achieving IFRS 17 compliance.
Part of the challenge is that IFRS 17 is not just a set of technology issues. Key considerations that insurers should also pay attention to may include:
- Data challenges—How will you access all necessary data from accounting, insurance and actuarial systems? How will important values be extracted from documents for use in IFRS 17 calculations? How can you avoid creating manual processes to cope with the new data management needs created by IFRS 17?
- Given those data challenges, how will you choose the right IFRS 17 measurement approaches?
- How will you map the best process to get from source data to the required compliance reports?
Whatever happens with the shifting IFRS 17 deadlines, and whatever approach an insurer takes to achieve compliance, the high-level best practices for this stage of the journey are to:
- If you haven’t already, start building a roadmap to identify and begin engaging the stakeholders and departments that will need to be involved
- Select the right vendors to partner with who can help guide you to ensure that all your implementation and data challenges have been considered and can be solved