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When the International Accounting Standards Board (IASB) issued amendments to IFRS 17, Insurance Contracts, on 25 June 2020 after a year of deliberations, key among the amendments was a change of the effective date to 1 January 2023[1]. Insurers now have an extra year to implement IFRS 17, or the Malaysia equivalent of MFRS 17[2], which was originally meant to go in effect from 1 January 2021.

This deferment is a welcomed reprieve for insurers especially now as companies struggle to confront the challenges COVID-19 has presented to their customers, people and business.

Most insurers have already started on their IFRS 17 implementation journey, but the COVID-19 pandemic has changed the dynamics of the business landscape. As a result, many are forced to decide whether to prolong the implementation project timeline to align with the new effective date, or pause and focus instead on building up their business during this pandemic recovery period.

There are inherent risks attached to either options. For those that are well into their IFRS 17 journey, what was already a long‑haul just got longer and prolonging the project timeline will mean that keeping the costs of change under control has become even more of a challenge. On the other hand, pausing the implementation also poses risks to the insurers’ ability to secure the right tools and capabilities at a later stage, which could also translate to higher costs.

Where possible, we encourage insurers to keep the momentum going and use this extra time wisely. However, should business priorities require the implementation progress be paused, ensure that you have an implementation road map with clearly marked milestones beforehand, so that you have a thorough understanding of the right tools and capabilities you’ll need to achieve all objectives by 2023.

To move things forward, insurers should focus on five key areas:

1 Focus your road map – Now is the time to take a step back and ask whether it is practical and achievable given the other demands on time, people and resources, the additional time and amendments. Cross-check progress against plans.

2 Drill down into changes – Analyze the impact of the changes for your specific business and implementation plans, the further steps needed to make the changes operational and the opportunities they open up.

3 Practice, practice, practice – The additional time means more time for test runs and parallel runs. Recognize that delivering IFRS 17 results will require multiple iterations, challenge and oversight before sharing with the outside world.

4 Talk to stakeholders – Use the extra time to strengthen communication with the business, subsidiaries and stakeholders. It will be critical to build into your implementation program time to help stakeholders understand what your IFRS 17 financial results will look like and how to interpret those results. Consider briefing investors and analysts early and throughout your journey on the approach and progress.

5 Look for opportunities – Despite cost constraints, don’t overlook the potential for related opportunities on the road to implementation. And look for commercial opportunities to optimize reinsurance arrangements, product design and pricing and asset liability management.

Similar to any IFRS conversion that involves significant time to complete, it is crucial to have extensive implementation roadmap and allow for certain flexibility to cater for uncertainties. Companies need to ensure that the commitment and motivation to complete the project remain high. They should take this opportunity of deferment to expand its scope of IFRS 17 financial reporting initiatives, for example to also include scope on management reporting improvements to cater for eventual adoption of IFRS 17.

Let’s not forget that IFRS 17 marks the biggest single change to insurance accounting, even bigger than the introduction of the IFRS Standards itself. Hence, despite the extra time, we all have to raise our game to hit the new targets. 

For more insights about IFRS 17, visit kpmg.com/insurancechange

 

[1] Annual reporting periods beginning on or after 1 January 2023

[2] Financial statements that have been prepared in accordance with MFRSs shall also make an explicit and unreserved statement of compliance with IFRSs (MFRS 101.MY16.1)