Insurers now have an extra year to implement IFRS 17. Naturally they want to use the time wisely. But what exactly does that entail? And is the answer the same for all?
When the IASB tentatively agreed to a 1-year deferral of IFRS 17 implementation in November 2018, we saw as many insurers shedding tears of frustration as those that let out a sigh of relief.
Of course, an additional year is a bonus. But many insurers – both large and small – had been hoping for a longer extension. Some face the challenge of applying a complex standard to a myriad of different products. Many have found the new standard’s data requirements a tall order. Most recognise they need more time with their software vendors to test, validate and configure their solutions to fit their particular business needs. Taken together, almost all are finding the practical steps needed to implement the standard time-consuming and complex.
The 1-year deferral does more than simply push the reset button on the implementation countdown clock. The goalposts are also being realigned to reflect proposed amendments to the standard – albeit in ways that most insurers will welcome – and insurers will need to analyse and assess the changes, update their implementation plans and then execute on them. When the standard was initially issued, insurers had approximately 3.5 years before the effective date. With the 1-year deferral, the clock now shows less than 3 years to go. We all have to raise our game to hit the new target.
What can insurers do to ensure they are making the most of the time they have been given? In our discussions with insurers around the world, we often focus on five key areas.
But the extra year also brings challenges. Besides the obvious concern about whether the IASB’s proposed changes will make the standard more meaningful and less complex to implement, many will likely face challenges ensuring that employees and top management continue to prioritise the project. For those that already started their IFRS 17 journey, what was already a long-haul just got longer – and typically more costly.
Keeping everyone motivated and aligned to overcome project fatigue (particularly given all of the other disruptions that may occur over the next 3 years) is priceless. We find that breaking the program down into more manageable sprints and rotating people onto and off the program throughout its life are techniques that can help the program stay on track. Staff rotations to the program help people to acquire new skills and experience to meet their personal goals, inject new life and energy into the team and spread knowledge as they graduate from the program into new roles.
One size doesn’t fit all and entities need to find the right pace of change to fit their culture and ambition – after all, some entities are tackling this solely to achieve compliance for local reporting. For others, it represents a whole new language to explain their business.
For the fortunate few who started work ahead of the standard being issued, and have the discipline to regularly update their work plan to accommodate change, one option might be to press ahead, using the additional time for further dry runs and to learn to steer their business on the new basis. Others will use the time to upgrade their finance and actuarial capabilities, automating where possible and rethinking processes to improve agility.
But what about any late adopters1? The problem facing the unprepared is not just one of increased risk of noncompliance. It’s also that they will likely face much higher operating costs in the future as they work to catch up with those that took the time to investigate the challenges thoroughly and invest in automation, and have put themselves at the back of the line to access a fastdraining talent pool. We urge these insurers not to hit the snooze button and to use the new timeline and proposed amendments as a wake-up call to get started.
In an attempt to reach the perfect answer, some insurers find it difficult to land accounting and actuarial judgments or identify their target architecture and select a software solution provider. If that sounds like you, we would strongly recommend using the deferral as a shot in the arm to re-invigorate your program, with a focus on right to left thinking that compares where you need to get to with where you are now. Perhaps you’ve held off from a detailed evaluation of the impact of IFRS 17 on reinsurance ceded, in the hope that the standard would be updated. That hope has been addressed (at least in part) and so the time to start the analysis is now.
Ever since the new standard was announced, we’ve been advising IFRS filers to prepare for the single biggest evolution in insurance reporting – certainly bigger than the implementation of IFRS and even bigger than Solvency II. While the extra year will provide some welcome wiggle-room for many insurers, the reality is that it will take hard work and tight timelines to ensure you are fully prepared.
Insurers need to make the most of the extra year. With the proposed amendments, it’s a bigger window of opportunity than many dared hope for.
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