We’ve known that IFRS 17 has been in the works for a while now with the IASB since 2001. It was published earlier this year in May 2017, with the full force of the standard coming into play by 1 January 2021. Having had the time to digest this new standard, let’s talk about what it really means, and how it’ll impact the global insurance and global accountancy industries.
The New Age Insurance Contracts Standard
The scope of this standard ‘applies to insurance contracts issued, to all reinsurance contracts, and to investment contracts with discretionary participating features if an entity also issues insurance contracts’ (IASB).
Let’s translate this. Basically, the aim of this new standard is to provide more transparency and comparability to build investor confidence. Essentially, IRFS 17 will make it easier to see the profit, loss, risk and liabilities in a complex insurance landscape. With the current IFRS 4, the heart of the issue is that the myriad different accounting policies make it difficult to gain clarity on what is going on inside the business. Ultimately, it’s like comparing apples with oranges, excuse the cliché. What this means for the insurance industry now is to bring together leaders from Finance, Actuarial and IT functions to work together to overcome one of the biggest accounting changes yet.
“Insurance is one of the last parts of the economy where we do not have an international standard,” Hans Hoogervorst told the Financial Times. “There is no high-quality accounting information in many cases… there is no way that investors can have a good view of what is going on.”
Bring on the Challenge
Unpacking IFRS 17 we see that it’s not just about compliance. From the insurers’ perspective, a whole raft of challenges and opportunities have come into the limelight. Here are the key areas that will be pivotal in successfully aligning with the new standard.
- Juggling Competing Priorities
The insurance industry is being confronted with a major shake-up. The industry has been hit by tidal trends in the past few years including cybersecurity, InsurTech, changes in the political and regulatory environments, evolving customer expectations, and digital transformation. Now with IFRS 17, we’re throwing another spanner into the works. Business executives will need to draw a hard line to put resources into planning for IFRS 17 as industry experts encourage leaders to begin the implementation journey. Although IFRS 17’s main goal is to make insurers’ financial statements much simpler for investors, the road to adoption is far from it.
- Transitioning People to Adopt New Systems
IFRS 17 will have a significant impact on data, systems and processes used to produce financial reporting. From an IT operations point of view, the financial architecture of insurers’ is under scrutiny. However, achieving operational success does not lie only in having a technically sound IT architecture, but also gaining the support of people to transition and adapt to new systems. Nobody in a business can afford to stand still, and to optimise adoption is what will distinguish the frontrunners from the late majority.
“If you view it simply as a reporting exercise, you’re not going to be able to deliver it: IT needs to be at the table,”
Lisa Wardlaw, Vice President and Treasurer at Munich Re, US (Life) in Atlanta, Georgia
- Navigating the Transformation
Having a clear direction and vision to map this huge financial transformation will require strong commitment from leadership and an open mind to realise the opportunities that lie within IFRS 17 for greater financial performance. The Big Four will have a huge role to play in supporting the business transformation of insurers and to provide real insights that go beyond basic implementation. As this project will involve multiple stakeholders, this process will be a test of balancing business transformation alongside the reality of daily business. It won’t be an easy journey, and it’ll demand both analytical and creative thinkers to get the winning formula right. Truly, it will take a team of trusted partners, leaders, and external talent to embrace the change and champion the IFRS 17 strategy.
8 Lessons to Take On Board for a Smooth Transition
Industry experts have put together the top 8 lessons to avoid making past mistakes. We’ve broken these lessons down into simple words –
- Steering the ship –
Good leadership is critical for the success of implementation. One of the key challenges here is to ensure that leaders stay committee, involved, and engaged throughout the implementation process.
- Eye of the Tiger –
A focus on an insight-led strategy will need to be at the cornerstone of the process to execute successful results. Backed by analytics, rather than gut-feel.
- Not just a problem for the Finance department –
IFRS 17 has evolved with the times and recognises that no business works in silos. Especially now that we’re living in highly digitised environments. The Finance, IT, Actuarial, and even regulatory teams will need to contribute to designing solutions.
- Don’t scrap the legacy system just yet –
You’ve got until January 2021 to get it right, so take it slow and steady. A massive change to the system will not only be costly, but it’ll also disrupt workflow and make it a difficult road for people to adapt.
- Preparation is key –
Starting the project can seem daunting, especially since IFRS 17 requires a collaborative approach from different teams. An in-depth gap analysis is vital to build a robust foundation and safeguarding against slip-ups.
- Keep it real and be patient –
Realistic time-scales, clear accountabilities, and sufficient time to test and learn; IFRS 17 is not going to be ready overnight. The result of proper planning will drive better financial performance in the long-run.
- Go beyond the spreadsheet
Spreadsheets are great, but relying solely on spreadsheets will not get your through the final 20 – 30% of the project. According to KPMG’s report, the operational pitfalls will affect insurer reputation and heighten risk. Use the spreadsheet wisely for experimenting and prototyping, but not as a primary reporting basis.
- Change is the only constant
The implementation timeframe will mean that your team might also undergo some changes with people coming and going. Secure your project by documenting the key decisions to keep the project on track.
“For the confident, change is opportunity.”
Mary Trussell, KPMG’s Global Insurance Accounting Change Leader
We’re Living in Interesting Times
Experts have noted that there will be no ‘one-size-fits-all’ model. In a rapidly evolving digital landscape, the global insurance and global accountancy industries will feel the significant but varying impact of this new standard. The waves of transformation in these industries will have an effect on the wider global economy, and it’s an area we’re keeping an eye on moving forward with both caution and excitement in the face of change.
What does IFRS 17 means for talent seekers?
For hiring managers, this will mean finding the right talent have the right technical skills in this new age insurance contracts standard. But, also the people skills to match in implementing it. This is where we can to help you be prepared for 2021.
At Think Global Recruitment, we scope the world for talented individuals who are motivated in applying their unique skill-sets in diverse markets abroad, and by leveraging our highly connected networks we work only with the best talent the world has to offer.
If you have a brief that requires a fresh approach, or just a second opinion, our dedicated team would love to help you find the right person from anywhere in the world.
- KPMG – Lessons for the Future – Preparing for IFRS 17
- EY – IASB issues IRFS 17 – The New Standard for insurance contracts
- PwC – In brief – IFRS 17 marks a new epoch for insurance accounting
- Deloitte – IFRS 17 – What does it mean for you?
- Insurance Business UK – UK insurers hit by IFRS 17 shake-up
- Financial Times