IFRS 17 continues to be a core pillar of projects we are delivering and passionate about, pairing EPM solutions with complex accounting standards. These projects are the only way to enable data management, calculation, process management, reporting and disclosure within a single technology.
We are working with several insurers implementing the standard and have composed key themes that we consider on every project.
With the standard deferred for another year, and the final changes to the standard being published in June, now is a great time to start initiating implementation if you haven’t started already.
Though the deadline may seem quite far away, many insurers are already focusing on their individual preparations for the upcoming standard. The reason for the early start isn’t simply due to the level of individual complexity of data or calculation required to achieve the standard per se, but the intensity with the sheer volume and differentiation of that data.
To add to the above, the regular amendments to the standard mean that preparing for IFRS 17 may seem like a challenge. Through a series of implementations, VantagePoint has gained extensive experience and expertise in respect to all things IFRS 17. The following considerations have been compiled by our IFRS 17 experts and reflect VantagePoint’s main areas of focus when delivering a project.
A brief Intro to IFRS 17
If you work for the office of finance of an insurer, reinsurer or any business dealing with insurance contracts you probably have gained at least a cursory understanding of IFRS 17. If this is not the case and you are new to the standard, the following is a brief breakdown of its purpose and origin.
On 18th May 2017, the IASB announced the International Financial Regulatory Standard 17 as a regulatory standard replacement for the former IFRS 4, strictly dealing with the treatment and disclosure of insurance contracts. The purpose of IFRS 17 is to standardise the global accounting and reporting by insurers with the primary focus on transparency and attainment of greater comparable understanding of each insurer’s financial performance and risk exposure. Due to opposition from insurers, compounded by macro-economic circumstances, the IASB has deferred the implementation date of IFRS 17 to January 2023.
Data Challenges: the right data in the right place
One of the first considerations with an IFRS 17 project is to identify and evaluate sources of data. VantagePoint performs an in-depth analysis of company data sources to ensure the right data can be accessed at the right time.
Insurance companies typically have complex and broad data sources, often scattered across multiple subsidiaries. One approach is to organise your data into a central data warehouse or data hub. VantagePoint utilises technologies that leverage ETL (Extract, Transform, Load) processes to automate data feeds that can access the data required for IFRS 17 reporting accurately and efficiently.
Calculations: complex calculations made simple
IFRS 17 is the most complex accounting standard to have been introduced by the IASB making defining policy and tackling implementation a substantial challenge. The mathematical calculations necessary for reporting are not in themselves overly intricate, but the sheer volume and requirements for tracking and analysis of change make the overall process extremely complex.
In addition to the various intricacies, the standard itself is a dynamic one. IASB has made numerous amendments and the final version of the standard is still due for publication. It is important to leverage a solution that can respond effectively.
VantagePoint works closely with the financial software vendors to create and fine-tune solutions. We advocate for the changes necessary to maintain the evolving standard. In some instances, we generate the changes to the solution to meet different needs and individual financial intricacies of our partners. It is important that your team implements and utilises a system with the flexibility to evolve with the rigours of the standard.
Gaining insight: disclosure and reporting
The standard requires a detailed level of disclosure in conjunction with implementation of IFRS 17, and as mentioned IASB are increasing and changing these as the standard evolves - for this reason, you do not want to be completing IFRS 17 reporting processes manually. Automating your disclosure process will save your team countless hours and increase the accuracy and efficiency of your reporting process.
In respect to IFRS 17 VantagePoint implements a single source solution for both calculations and reporting. This solution provides the ability to automate the disclosure process and affords the agility to adapt reporting processes to better reflect the modifications that will occur over the coming years. The single source of truth means fewer integrations, less time, and reduced time to implement change.
Complete Transparency: trust your numbers
The primary attribute that VantagePoint ensures is delivered when implementing a software solution for IFRS 17 is model explain-ability; being able to understand the journey from input data to output journals. This aspect is extremely important for eventual auditing. It is essential that your solution is not a black-box.
A key challenge to consider when implementing IFRS 17 is transparency. Auditors will want you to explain the numbers in detail. Your team will need to clearly verify outcomes when investigating issues and refer to the solution to verify calculations. Avoid systems where you plug in the data and are provided with an output that cannot be trusted. You must be able to see the magic happen.
Project Governance: running a successful project
The key to any successful implementation lies with project governance and methodology. If the project has a clear structure, approach and governance the implementation is more likely to be successful with expectations of all stakeholders either met or exceeded.
VantagePoint utilises a combination of the Waterfall and Agile methodology when running IFRS 17 implementations. Waterfall provides structural clear-cut phases often required by Programme Management to be able to map out and see the successful end-to-end delivery of projects. Agile provides an iterative and developmental nature needed to adapt to specific changes and issues that can arise during software implementations. As Agile might be new to everyone, this agility and flexibility must be built into your methodology. Make sure that your working methodology is agreed upon and that project management structures are established. Transparency in this regard focuses the project, limits miscommunication, and helps manage change.
Most insurers have started their IFRS 17 implementation effort, whether focusing on accounting policy or implementing solutions to support actuarial and finance challenges defined by the standard. However there are still a large number of insurers who are tactically waiting for the front runners to make adequate progress to de-risk their own projects This approach, often labelled ‘smart follower’, is a good way to approach such a significant and potentially costly compliance project.
In starting your project later, it will mean teams are more experienced, implementation effort and cost is lower, technology solutions are more mature, and speed of delivery should be dramatically increased. If you’d like to learn more about the practical steps to successful implementation, to absorb lessons learned from ongoing IFRS 17 programmes or to discuss the kind of support your IFRS 17 projects may require, please feel free to reach out, or comment below.