IFRS 17 – Pragmatic solutions are not always the best
IFRS 17 is the first common basis that will establish consistent accounting for insurance contracts across the globe. It affects primarily publicly traded insurance companies who currently prepare their reports in accordance with national legislation. IFRS 17 increases cross-border transparency and comparability. The International Accounting Standard Board (IASB) has thus created an important base on which to build greater trust in the insurance industry.
Insurance companies have been grappling with the implications of IFRS 17, both positive and negative, for a while. Today, many insurers have barely scratched the surface of its implementation. They perceive IFRS 17 as another massive tour de force to content with; similar in many ways to how they greeted legislative programs such as the European directive “Solvency II”. Insurers have already invested much effort in transforming their existing financial systems in order to comply with Solvency II. IFRS 17 will be yet another drawn-out project likely to tie up a lot of resources for years to come, since the new standard will not only affect the accounting and actuarial functions, but also many other departments.
Tips are already being passed around on how to approach the issue as pragmatically as possible, and about the best ways of recycling the methods employed for Solvency II for this project. But is that really a solution? Fact is: IFRS 17 will not be the last regulatory hoop to jump through. If insurers do not wish to bounce from one major regulatory project to the next, they will have to say good-bye to their heterogeneous IT landscapes sooner or later. These are not only inflexible and inefficient, they are also unlikely to be up to the standards required in terms of quality, granularity, and data processing speeds.
It’s time for a sustainable solution
If we compare the data required for Solvency II, IFRS and key data-driven management, for instance, we will see an overlap of more than 60 percent. This figure alone suggests that separate implementations and technical solutions are not an ideal answer. Rather than building yet another expensive short-term bespoke solution, insurers affected by IFRS 17 might do well to grasp this opportunity and get ready for the future with an integrated finance and risk architecture that is based on harmonization and integration of all relevant data, processes and functions. Insurers’ legal capacity, flexibility, and efficiency will reach new levels if they are willing to head in the direction of central data repositories and integrated architectures, because they will no longer have to separately compile and process the same information for different functions. This will free up the key players in the company; an aspect that must not be overlooked when discussing possible solutions to IFRS 17, as unifying finance and risk systems and the creation of integrated architectures will have a strategic impact. The role of the financial department within the company is rapidly changing; moving from a retrospectively oriented control function to supporting strategic decision-making. This will allow the key players to focus on predictive assessment, utilizing future-oriented simulations to help with key business decisions, rather than eternally playing catch up with regulatory requirements.
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