IFRS 17 is the International Financial Reporting Standard that governs accounting policies for insurance contracts. It is meant to replace IFRS 4, which was first instituted in 2004. The IFRS 17 standard provides insurers with guidelines about how to categorize their contracts, how to measure their future cash flows with acknowledgment of insurance risk, and how to recognize their revenues and calculate their reserves according to one unified standard.
Many insurance businesses are on their toes about the issue of IFRS 17 given that the compliance deadline of January 2023 is looming. You may be in the same position if you have a stake in your insurance company’s regulatory reporting program. But remember that the compliance journey doesn’t have to be as difficult or as tedious as it may initially appear. Even something as complex as IFRS 17 implementation can be made easier with a little practice and preparation.
If you start your compliance journey with a simulation, then that may help you and your personnel understand how ready you are to adopt IFRS 17. That, in turn, will allow you to make the necessary recommendations to your actuarial, risk, accounting, and IT teams. To that end, here’s a list of steps to take when beginning your simulated implementation of the IFRS 17 standard across your insurance organization. Start your simulation as early as possible so that you can reap the advantages of being an early IFRS 17 adopter.
Onboard New Regulatory Reporting Software to Ensure Smooth and Hiccup-Free Rollout
Your preps for IFRS 17 implementation can be thought of as akin to practicing for a basketball, soccer, or football game. It matters that you and your team have a good practice environment so that you can engage in a proper practice run. One way that you can level the field for your compliance team, so to speak, is to onboard new regulatory reporting software. That will establish an environment that will make your IFRS 17 simulation as smooth and as straightforward as possible.
Look for an out-of-the-box solution that will already allow you to single out the necessary data elements for IFRS 17 and implement prebuilt models and calculation processes. The solution should also allow you to compile quick reports that you can simply customize for each submission cycle. A reliable IFRS 17 solution means fewer program risks and less money spent on control costs—which ultimately frees up your energies for problem solving.
Run a Requirement Analysis for All Your Insurance Contracts
Next, after making plans to upgrade your current tech stack, do a requirement analysis for everything that’s needed in order for the simulation to push through. You will need to account for every element that will be involved in the actual IFRS 17 implementation.
Before the simulation begins, you’ll want to take stock of the following elements involved in preparing insurance contracts that are compliant with IFRS 17, such as your calculation methods for IFRS 17’s General Measurement Model (GMM), the Premium Allocation Approach (PAA), or Variable Fee Approach (VFA). Once you’ve identified the gaps in your readiness to implement IFRS 17, you’ll be all set to give your best efforts throughout the simulation.
Download, Plug In, and Finalize Your Insurance Data
One of the most important aspects of your IFRS 17 compliance journey is your ability to collect, manage, and process the data involved in your insurance contracts. IFRS 17 compliance will demand a granular and precise approach to your data and a whole-of-enterprise awareness on factors like risk. This is something you will understand as early as during the simulation phase.
You will need to facilitate a complete turnover of insurance contract-related data to your simulation platform, along with a tally of accounting events to follow and a set of calculation results to expect. If all your data is accounted for, you will be ready to begin your calculations.
Start Your Simulation in Earnest
The last step is to run the simulation in earnest and see what happens when you start your calculations according to the hierarchies, dimensions, liabilities, and subledger requirements prescribed by IFRS 17. You can expect to follow a cycle that comprises liability runs for your portfolios, result validations, adjustments of your templates, and reevaluations based on those adjustments.
The simulation is where you and your compliance team will have the most hands-on practice for managing your resources, testing your calculation methods, and clearing your reporting milestones according to strict deadlines. These may not be easy tasks, but you will become more well-versed in the process and you will be able to fine-tune your IFRS 17 implementation processes as you go. You and your team will gain a mastery of the standard—as well as a measure of confidence in applying it—that will serve you well when January 2023 rolls around.
Conclusion: Practice Makes Perfect in Your Implementation of IFRS 17
IFRS 17 demands a more rigorous and more unified standard for insurers’ accounting practices for their insurance contracts. For insurers that are used to keeping their own systems, meeting IFRS 17 requirements will be no easy feat. But practice will eventually make perfect, and insurers will come away with greater clarity over their contracts’ cash flow.
Set the stage for the earliest possible adoption of IFRS 17 across your organization, and make plans for a simulation to take place very soon.
