IFRS 17 - attempting to drive value beyond compliance

IFRS 17 - attempting to drive value beyond compliance | Insurance Business

IFRS 17 - attempting to drive value beyond compliance

The following is an opinion piece written by Henri Wajsblat (pictured), global director of financial services solutions, Anaplan. The views expressed within the article are not necessarily those of Insurance Business.

A big change is coming for the global insurance industry in the form of the International Financial Reporting Standard 17 (IFRS 17). IFRS 17’s planned go live on January 01, 2022, may seem a long way off, but organisations need to start preparing now if they want to ensure they are compliant in time.

With this in mind, IFRS 17 has become a top priority in the insurance community, because it reflects a systemic change in the valuation of insurance contracts. The journey to become compliant is long and complex, requiring a significant overhaul of financial and actuarial systems, processes, accounting and disclosure policies. Orchestrating the data coming from multiple sources, enabling collaboration across various functions and addressing the new reporting requirements in an agile and scalable solution will be key success factors to ensure the process is as effective and streamlined as possible. Taking a connected planning approach may just be the answer.

Finance and actuarial teams hand in hand
IFRS 17 is meant to create a single principle-based framework for all types of insurance contracts, across all IFRS-compliant countries, reflecting the economic changes and enhancing the comparability of financial reporting between insurers around the world. Additionally, IFRS 17 is designed to increase expectations of transparency and lower granularity of reports coupled with greater analysis on the performance of the insurance contracts. What’s more, it’s set to impact the full finance value chain - from finance calculations and accounting, to costing, planning, forecasting and reporting.

Given the scale and complexity of the implementation, the clock is already ticking for insurers to become compliant. To stay ahead and minimise any business slowdown, finance and actuary functions need to collaborate much more closely in order to identify the business process redesign required under the new IFRS 17 standard.

Using technology for the transition
IFRS 17 requires higher data volumes and improved data quality in order to meet the strictest granular valuation requirements, which will ultimately drive a fundamental shift in the way businesses collect, store and analyse their data.

For many enterprises, finance, actuarial and risk management architectures are still somewhat siloed, often relying on legacy tools that may not be flexible enough to deal with the IFRS 17 requirements. Patching existing architecture solutions might be seen as the simplest and least costly option to adapt to the new IFRS 17 requirements and overcome these legacy issues. However, taking this approach may in fact prove to be risky and costly over time, since it often requires manually-intensive data management to trace reported IFRS 17 figures back to calculation models and assumptions.

IFRS 17 also introduces the concept of a forward-looking view of the financial data. As such, a number of functionalities are going to become key contributors in every affected business’s targeted technology architecture, including the likes of cashflow modelling and forecasting, consistency of the planning and forecasting models with the new external reporting basis, and the ability to simulate the impact of a new product or a change in pricing in the IFRS 17 financial statements.

Planning your IFRS 17 journey: Will it be good enough to simply tick the compliance box?
IFRS 17 implementation projects likely take the form like those of multi-year finance transformation journeys. They address a very large scope of solution requirements, including Contractual Service Margin calculations, IFRS 17 compliant accounting systems, IFRS 17 cost allocations, adapted planning, forecasting and management information to the new IFRS 17 KPIs, as well as IFRS 17 reporting and disclosures by 2022. While implementing these various layers of functionalities, businesses will also have to run sensitivity analyses and simulations, scenario modelling and impact assessments of any material changes in their business.

Taking into account all the required technology and human investments, will the success of IFRS 17 implementations only be measured by compliance with the new regulation?

It’s no secret IFRS 17 is impacting the entire finance value chain of the insurers. For instance, what will the three (or more) year business plan relying on actuarial assumptions look like, given that 2020 and 2021 are the last non-IFRS 17 years of reporting and 2022 and beyond reporting will have to be IFRS 17 compliant? This exercise will require insurers to run both ante and post IFRS 17 forecasting scenarios and explain the valuation differences between the datasets.

How to reasonably prepare for this exercise if the insurer’s planning system is not connected to the IFRS 17 solution being implemented and does not share a common data model?
Running IFRS 17-related processes alongside each other in legacy and manually-intensive tools is a hefty task for any business, and it will be a challenge for teams to remain aligned. But companies that consider utilising a cloud-based planning, modelling and performance management platform are likely to drive more business value from their compliance journey. A connected planning solution can support the implementation of the core IFRS 17 reporting requirements and, at the same time, be flexible enough to model out impact assessment scenarios and run required ‘what-if’ scenarios during the transition period. The right platform can also assist in natively increasing collaboration between accounting, controlling and actuary departments and offer openness to multiple source systems via APIs to optimise data orchestration.

Finally, beyond accounting and reporting requirements, IFRS 17 solutions should provide the management with planning, cost allocations and value-add analysis functionalities alongside the ability to benchmark more easily the company’s performance versus industry peers.