Overview
Complying with the International Financial Reporting Standard issued in May 2017 (IFRS 17) is requiring an expensive and complicated transition for most insurance
companies. In fact, you’ve probably been scrambling to prepare and were relieved when implementation was extended by a year, to January 1, 2022.
But you can’t afford to press the pause button. Now is the time to accelerate. There’s still a lot of work to do, starting with picking vendors to provide you with new software — and perhaps, while they’re at it, transform your systems. The good news is that vendors are more ready now than they were six months ago. If you make sure you understand what IFRS 17 requires of your systems and find the vendor with the capabilities you need, you’ll stay on track for a successful changeover.
To deliver on these requirements, you first need to determine whether you can reuse your existing system capabilities to achieve IFRS 17 compliance. Two insurers with seemingly identical books of business but distinct systems could come to very different vendor decisions. Understanding your existing architecture upfront can help you whittle your list of potential vendors.
Five critical vendor capabilities
Next, you need to make sure that the vendor’s solution has the following five key capabilities. Without all of them, a vendor won’t be able to keep you fully compliant with IFRS 17.
- Master data management and aggregation
- Orchestration
- Calculation engine
- Rules engine
- Reporting
Master data management and aggregation
This capability is necessary for data preparation, data validation, posting and reporting. Besides needing a predefined IFRS 17 data model and flexible approach to data storage, a vendor’s solution needs robust data feeds, a set of predefined rules to aggregate and post data/results, and the ability to both integrate with general ledgers and actuarial models to load and post data and to create an audit trail to track results.
Orchestration
This capability is critical for fulfilling all of the IFRS requirements outlined above. The vendor’s solution needs to orchestrate end-to-end workflows using clear reporting processes that can coordinate and assign tasks and resources. It needs to develop scripts to trigger execution of extract, transform and load (ETL), calculations, postings and other components; develop worksheets to perform adjustments; and be able to audit data inputs, outputs and any manual interventions. The vendor’s solution also needs the flexibility to adapt to specific users’ needs.
Calculation engine
To comply with the standard, vendor solutions must provide a calculation engine capable of performing the required number of calculations. This means having technology powerful enough to process a significant volume of information, with the ability to trace and document calculation inputs and outputs in detail. In addition, a platform must offer a built-in data management and orchestration framework that allows users to oversee and configure data transformation and logic applied to input and output data, therefore providing data lineage, traceability and auditability.
Some of the calculations that a vendor solution will need to make include: separation of non-insurance components, (de)recognition of contracts, profitability testing, creation of unit of accounts, calculation of best estimate cash flows, discounting of cash flows, calculation of acquisition expenses and amortisation, calculation of the risk adjustment, and calculation of the contractual service margin (at inception and subsequent measurements). The engine must also create tables for final and intermediate results.
Rules engine
A vendor’s solution needs predefined rules that can integrate with data management to generate posting. The engine must be easy to deploy and able to accommodate your custom posting rules. It also needs an easy-to-use interface so finance people can configure it as needed.
Reporting
Another critical capability is the ability to develop predefined and ad hoc reports leveraging in-memory storage for balance sheets, statements of comprehensive income, and disclosures. These predefined reports monitor the overall process status and analyse the postings generation. Ideally the vendor’s solution will present these reports in visually engaging and intuitive ways tailored to the insurer’s preferences.
No time to stand still
Given the huge changes associated with IFRS 17, we estimate that there are fewer than ten vendor solutions in the marketplace today that have the necessary capabilities to offer a comprehensive solution. Even among this fairly small universe, you’ll need to scrutinise the various offers to ensure you choose the one most appropriate for your needs and current IT environment. PwC’s advice is to try before you buy. Pick two to three vendors, work with them on proofs of concept over the next two to three months, and then decide which one is best for you.
What next? Refer to the contacts page and PwC's insurance services for more information on how PwC can help you with IFRS 17.
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Contact us
Diego Cervantes-Knox
IFRS 17 Insurance, Financial Services, Director, PwC United Kingdom
Tel: +44 7704 074 383
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