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Your IFRS 17 Readiness Guide: 4 Things to Get Prepared Now

Sep. 2 2020 by Alberto Castellani, Manager Consulting - CCH Tagetik

Performance Management Reporting & Compliance

IFRS 17 is a behemoth of a standard, not just because it impacts hundreds of insurance companies world-wide. Or because it touches more than 144 countries. Or because 40% of the insurers believe it's critical to the industry's survival. Nope. It's a behemoth of a standard because, for those of you who fall under its compliance umbrella, it crosses systems, data, processes, and people from far-flung corners of organizations.

If we've heard it once, we've heard it one thousand times: IFRS 17 represents one of the biggest and most significant insurance accounting change in decades. This standard is much more than a simple accounting change or a regulatory compliance exercise. Its impacts will run broad and deep across finance, risk, actuaries, and IT.

If we were to break down all the things you need to comply with IFRS 17, it would be a long, detailed list. (Oh, wait. We did! Check out The Ultimate IFRS 17 Software Checklist.) For this post's purposes, however, we'll break down how the standard impacts systems, data, processes, and people, and what you need to do to get prepared.

Systems

For many organizations, actuarial, finance and risk are self-contained processes. It’s likely few significant improvements have been made to these accounting or contract management systems in years. (Why would you when you haven’t had to?) And since these systems are so dated, it's likely that the majority consist of a "closed systems architecture." In other words, these systems self-contained process units that can't interconnect. It’s for these reasons that, when it comes to meeting IFRS 17's requirements for cross-company collaboration and data flow across operational systems, current systems aren’t enough.

The solution: A solution that is built with open-architecture and can connect all existing systems, while communicating both upstream and downstream.

Data

IFRS 17 will have you comparing apples and oranges. The standard impacts everything from insurance contracts, to reinsurance contracts issued; from reinsurance assets held by the insurer, to investment contracts with discretionary participation features. The data IFRS 17 requires is both broad in scope and far-reaching. 

To produce IFRS 17 figures, you'll need to collect and process a high volume of data coming from different sources with increasing levels of granularity and depth. For example, under IFRS 17, companies will create portfolios of insurance contracts and split them according to whether they are profitable or onerous at initial recognition. Complicating this, you'll have to weed out contracts issued more than a year apart into a different group and then divide the portfolio based on the originating year and determine its profitability. You'll also need to be able to audit your data. Without an automated software that tracks the data history, you're in for a TON of manual effort and investigation. 

The solution:  You need a solution that is 1. Capable of managing and processing large volumes of data at granular levels. 2. Has the functionality to manage growing information and reporting needs. And 3. An approach that aligns, connects, and centralizes data company-wide — not a fragmented approach aimed at compliance alone.

Processes

IFRS 17 requires you to overhaul processes down the reporting chain. Band-aid fixes won't suffice. Nor will short-term solutions. Failure to adopt processes will only lead to bottlenecks, errors, and worst of all, more time and resources swallowed down the line.

Affected processes include: 

  • Monthly close: IFRS 17's calculations are more complex, which means you'll need more time to understand results.
  • Consolidation: IFRS 17 includes a host of additional calculations, new financial statement formats, chart of accounts and accounting logic, like posting rules.
  • Reporting: IFRS 17 requires compliance with new reporting and disclosure requirements, like methods, estimation approaches, and risk information.
  • Planning: Consistency between financial results and management information and KPIs must be guaranteed.
  • Audits and controls: You'll have to design specific controls to ensure the quality and integration of existing control frameworks, auditability of reported figures across the whole value chain, and the historicization of reported figures and input data.

The solution: One solution for all, all for one solution. A unified, automated platform covering all financial processes from end-to-end is critical to managing all affected processes in a uniform and controlled way that allows for transparency for the figures' entire life cycle.

People

IFRS 17 ropes in contributors from across your organization, and with them, new opinions and perspectives — which may oppose. Your challenge? To get the following stakeholders on the same page

CFOs: For those responsible for overall strategy, IFRS 17 will require updates to the income statement, other financial statements, management reports, KPIs, and incentive frameworks for analyzing margin and volatility.

Finance and Operations Departments: Finance and operations must allocate time and resources to design, build, and test new data, modeling, and systems while updating policies and procedures. 

Accounting: Accounting must update accounting rules, chart of accounts and ledgers to recognize CSM on the balance sheet, CSM amortization on profit and loss, and other IFRS 17 relevant measures. 

Actuarial: The actuarial department will have to allocate time and resources to design, build and test new data, update actuarial, risk, and capital models and verify the ability of legacy actuarial and risk systems to adapt. 

IT: Since IT is responsible for operational data sources, integration, and systems, they will be tasked with updating all existing actuarial, finance, accounting systems, and implementing new IFRS 17 and IFRS 9 systems that are integrated.

Beyond each department's responsibilities, they'll have to work together to understand how compliance works across departments, ensure like-financial management procedures, and mitigate transition impacts. 

The solution: You need a co-created software implementation that involves point people from every affected department. This dream team can voice their own department's needs while learning and understanding how IFRS 17 compliance impacts neighbouring departments.

You’re probably already feeling the pressure to kick-start your compliance efforts. Want more info on what needs to change, how to manage data, and what a smooth implementation looks like? Read the whitepaper: Are You Ready for IFRS 17?

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