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Unlocking the business improvement potential of IFRS 17

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With IFRS 17 the insurance industry is facing yet another round of regulation – hot on the heels of Solvency II. Many insurers readily admit to having spent a large amount of Solvency II only to end up with compromised, tactical solutions which enable compliance, but added nothing – or very little – to better business performance. It is also debatable whether technical improvement was achieved in terms of systems and data. In many cases the data elements were the most challenging aspect of Solvency II and many complex processes to move, alter, enrich data and consolidate were developed that now result in difficulties proving data lineage, providing end to end audit trails of the journey and treatment of the data and a high cost of ownership.

So, now that insurers are facing IFRS 17 – at a similarly estimated high cost of implementation, how can they be assured of achieving business improvement as well as compliance? IFRS 17 represents a significant change for many insurance companies, both in terms of financial results and finance operating model. For example, preparing and understanding numbers now to be presented in a different format and at a more granular level and using a new measurement model (or models), along with additional disclosures will have a major impact on the insurance industry and those evaluating its performance.

These are some of the main points to consider when choosing an IFRS17 solution:

  • Convergence of actuarial & finance: IFRS 17 will require a new way of working between actuarial and finance functions in order to produce the required information in the right format and context.
  • Data is key: Insurers will need an essential change in the way data is collected, analysed, and stored, with IFRS 17 altering the emphasis from a prospective basis of analysis and introducing a more granular measurement level.
  • Finance Transformation: Finance systems have traditionally been at the end of the queue for transformation budget and, while much improvement has been made to the underlying processes, the technology is still a barrier to agile change. IFRS 17 will stress existing GL and consolidation engines and is likely to highlight the weaknesses of these underlying finance systems.

While there is much to do and the deadline of January 1st 2021 is getting closer, there is still time to ensure an IFRS 17 approach that does deliver business improvement and indeed any such approach may also accelerate implementation and ensure a lower overall cost of ownership.

What needs to be considered and how may we categorise this between Obligation and Opportunity?

Obligation Opportunities
What new processes will be required? Can we re-use Solvency for the production of the BECF?
Accounting policy choices What about IFRS 9?
– For reporting, continuous close and reconciliation it is recommended to have IFRS 9 reporting out of the same dataset, preferably with a subledger scenario
– Assets are not in scope (different department)
Will we use IFRS 17 principles in the,planning process? Availability of high quality, granular data, for business processes and MI as well as IFRS 17
Which discount rates will be used? Advantage of integrated actuarial and risk processes and a single source of data for both
How to calculate the Risk Adjustment? Do we want to target a better user experience?
How to transition to the new ledger? Relevant real-time reporting: disclosure, MI, internal reporting
Setting new KPIs, supporting understanding Is there room for predictive analysis and machine learning for better business insights to support finance performance improvement?
What is the split of responsibilities? What about continuous close?
How to ensure timely disclosures?
How will profit be impacted, i.e. amount as,well as timing?

 

… and on the solution side, what options are available for insurers to choose from?

Category Point Solutions Innovation solutions Disruptive solutions
Business
Value
Add one point solution to existing IT landscape often with a limit IFRS17 process focus such as disclosure Focus on an embedded and integrated approach, for IFRS 17 with a high degree of automation Rethink approach to finance within the context of new technologies, digital light provider
Cost Lowest costs up front, often higher cost of ownership Higher costs, some offset manual approach in,point solutions High cost – lower overall cost of ownership, reduced manual cost, greater efficiencies
Operational/
Maintainability
Primarily End User Computing (EUCs) desktop, solutions with high manual interaction in the end-to-end process More streamlined closing process with a high degree of automation and inbuilt reconciliation Potential to become a market leader/best in class

 

IFRS 17 voor Verzekeraars: In de startblokken voor een efficiënte implementatie van IFRS 17

De basis beginselen van IFRS 17 zijn grotendeels bekend. Eind 2018 start u naar verwachting met de implementatie. Voor de start van de implementatie maakt u ingrijpende beleidskeuzes. Welke afwegingen maakt u en waarom? Welke aanpak past het beste bij úw verzekeraar? Tijdens de 1-daagse IFRS 17 conferentie stelt u al uw vragen aan experts en leert u meer over de keuzes van uw peers. Klik hier voor de brochure of bestel je ticket voor deze conferentie.

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