Making up time on IFRS 17

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As the deadline for IFRS 17 implementation moves closer, insurers are naturally seeking ways to simplify and accelerate their processes. But many are finding that more haste can often mean less speed. Could the answer be to look for options that are smarter as well as faster?

Overcoming the hurdles

Preparing for IFRS 17 can sometimes feel like a game of snakes and ladders. Just when you think it’s all going to plan and you’re on the ascent, you can suddenly find yourself sliding back down again.

The search for ways to simplify processes is a clear case in point. IFRS 17’s premium allocation approach (PAA) does away with the risk adjustment, contractual service margin and other complexities within the general measurement model (GMM). In its place is a seemingly more straightforward calculation of premium less acquisition cost.

Yet, as many insurers are now finding, meeting the eligibility criteria for the PAA could end up being more taxing than evaluations using the GMM. The hurdles range from proving that the PAA calculation wouldn’t materially vary from the GMM result, to tricky issues such as the treatment of outwards reinsurance and onerous contracts.

Similar complexities are emerging in areas such as entity reporting at a group versus local level. The precision of evaluation should reflect the material influence on the results. A local operation may not make a big difference to group results and so evaluations could be grouped in with similar contracts elsewhere. But this could meet pushback from local regulators who argue that the subsidiary is material within their particular market, even if it isn’t in the group.

Why ‘make do’ might not do

Technology strategies are also proving difficult to simplify. Broadly speaking, IFRS 17 presents a choice of undergoing some form of finance transformation or a seemingly quick, easy and inexpensive adaptation of existing systems. Many insurers have understandably opted for the latter.

But ‘make do and mend’ is already coming under severe strain. Over time, the layers of complex workarounds could become unmanageable, increase the overall costs of reporting and heighten the risk of mis-statement. It also means missing out on a golden opportunity to boost data analytics and sharpen customer insight.

Cutting through the complexities

If compliance is all you want, then a one-stop-shop or managed service solution may be the answer for you. These fast-track solutions can also provide a useful backup or fallback option if your project is under way but you’re not sure whether your systems are currently fit for purpose or will be ready to go in time.

For those who want to keep in-house implementation on track and find ways to ease the strain, our experience of working on numerous IFRS 17 projects highlights the importance of doing things better, rather than just simpler or faster.

If we come back to PAA eligibility, as an example, business teams might have said that the data you’re looking for isn’t available. However, if you work with them to source and adjust the information you have, you’ll find that you can secure a lot of what you need. You can also look to work together and adapt your financial planning and analysis process (FP&A) to support areas such as onerous contract evaluation. The win-win from such a joined-up approach would be valuable insights for business teams as well as financial reporting.

It also pays to think about how implementing better processes for IFRS 17 could provide a springboard for improving efficiency and management reporting across your business as a whole. This doesn’t necessarily need to be a full finance transformation but if you do have to get under the bonnet to gear up for IFRS 17, it’s clearly worth looking at what else you could fix while you’re there.

Working from right to left is key

The underlying priority for successful IFRS 17 implementation is charting what needs to be done, how to do it in the most efficient way and working out what wider benefits you could derive.

This works best if you begin with the goals and then work backwards from right to left to develop an achievable roadmap for getting there. You can then work up and down to identify the best options along the way.

You’ll find some components can be simplified, some accelerated and some improved giving you an effective plan and timeline for successful IFRS 17 implementation.

Less strain, more gain

While nothing is simple with IFRS 17, there are ways to ease the strain and get more of the gain. Judging how one decision affects others down the line is key. It’s equally important to bring business and implementation teams together to determine what solutions are possible and how to deliver them within the time available.