IFRS 17 will transform insurance accounting. Ever since the new standard was announced, we have advised IFRS filers to prepare for the single biggest evolution in insurance reporting — larger than the implementation of IFRS and even greater than Solvency II.

The new standard presents significant challenges to prepare and implement, particularly as many insurers will be implementing IFRS 9 at the same time.

Despite the proposed one-year deferral of the effective date to 1 January 2022, there is still a vast amount to do to prepare for a successful transition. It is critical that this additional time is used wisely.

How does your implementation progress match up with your peers? Our latest global benchmarking survey found significant differences between entities.

Even though the additional year is a welcome bonus, many insurers — large and small — were 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. And most recognize they need more time with their software vendors to test, validate and configure their solutions to fit their unique business needs. All in all, most insurers find that these essential steps are time-consuming and complex.

The one-year deferral does not just hit the reset button on the implementation countdown clock. The goalposts are also being moved to reflect proposed amendments to the standard. While most insurers will welcome these changes, insurers will need to analyze and assess, update their implementation plans and then execute them. When the standard was initially issued, insurers had approximately three and a half years to its effective date. But with the one-year deferral, there is now less than three years on the clock.

What can insurers do to make the most of the time given? We focus on the following five key areas in our discussions with insurers around the world.

1. Strengthen your roadmap: Cross-check your progress against your plans. Don’t forget to consider any areas you have on hold in the hope of further amendments. Make sure you have all the right tools and capabilities to achieve your goals by 2022.
2. Scenario planning: Identify uncertainties and conduct robust scenario-planning exercises. Test any assumptions to make sure you are prepared for a variety of outcomes and situations, including the proposed amendments even before they are finalized.
3. Practice, practice, practice: Recognize that delivering IFRS 17 results will be challenging and require multiple iterations and oversight. Don’t forget to allow ample time to design, test, and implement new controls based on new and revised processes.
4. Talk to stakeholders: In your implementation program, you must allow time to help stakeholders understand what your IFRS 17 financial results will look like and how to interpret them. Review current performance metrics and identify IFRS 17 results drivers. Work with the business to figure out which metrics need to be kept, refreshed or replaced.
5. Look out for opportunities: Consider using IFRS 17 as the catalyst to upgrade your finance and actuarial capabilities. Take the time to examine your data architecture, i.e. how the data flows and interfaces through your end-to-end processes. This can help you realize the best way to simplify, standardize and automate your financial and actuarial processes, and how to optimize reinsurance arrangements, product design and pricing and asset liability management. 

But this additional year also brings challenges. There is the obvious concern whether the IASB’s proposed changes will make the standard more meaningful and less complex to implement. And, many will struggle to ensure employees and top management continue to prioritize the project. For those that have already started their IFRS 17 journey, what was already long-haul just got longer — and sometimes more costly.

Avoiding project fatigue by keeping everyone motivated and aligned is priceless, especially if disruptions arise over the next three years. Breaking the program down into manageable sprints and rotating people on and off the program’s lifecycle can help the project stay on track. And moving staff into the program allows people to:

• acquire new skills and experience to meet their personal goals
• inject new life and energy into the team
• spread knowledge as they graduate from the program into new roles.

One size doesn’t fit all and entities need to figure out the right pace to suit their culture and goals. Some entities are only aiming to achieve compliance for local reporting. But for others, it represents a whole new language for their business.

1. A welcome relief for front-runners
   For the fortunate few who started work before the standard was issued, and are disciplined enough to regularly update their work plan to accommodate change, one option might be to press ahead. They can use the extra time for further dry runs and to learn how to steer their business based on these changes. Others will use the time to upgrade their finance and actuarial capabilities, automating wherever possible and rethinking processes to improve agility.
2. A wake-up call for late adopters
   But what about late adopters? The problem facing the unprepared is not just an increased risk of noncompliance. They may also face higher operating costs in the effort to catch up with those who tackled the challenge and invested in automation earlier. These late adopters are at the back of the line for a fast-draining talent pool. We urge these insurers not to hit the snooze button, but to treat this new timeline and proposed amendments as a wake-up call to get started.
3. A reality check for perfectionists
   In their search for the perfect solution, some insurers find it difficult to make accounting and actuarial judgments. They may struggle to 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. Focus on right-to-left thinking that compares your goal to your current situation. Maybe you’ve held off from a detailed evaluation of the impact of IFRS 17 on reinsurance ceded in the hope the standard would be updated. That expectation has been addressed (at least in part), so get started on the analysis right away.

While the extra year will provide welcome wiggle-room for many insurers, it will still take hard work and tight timelines to guarantee you are fully prepared. Insurers need to take full advantage of this extra year. With the proposed amendments, it’s a bigger window of opportunity than many dared hope for.

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