The long awaited IFRS 17 is more than a compliance obligation. It creates a real opportunity for transformative operational change.

At this point, everyone is likely aware of the new accounting standard for insurance contracts — IFRS 17. While it’s been a long time in the making (more than 20 years), it won’t be so long in the enforcement. Introduced in May of 2017, IFRS 17 will be effective January 1, 2021.

Looking at where the market stands today, most insurers have already begun a preparation phase.  In many cases, this preparation phase will be completed during 2017, and will be followed by software implementation activities and an extensive test phase over the course of 2018 and 2019.  A common target date for go-live is January 1, 2020, to allow for the comparison period.

There are deviations, of course. First movers have already selected software and/or run POCs. Others are watching and waiting before making their own decisions. The differences between companies seem to be of perspective and philosophy; that is, their responses are determined by whether they see IFRS 17 as a simple (but troublesome) compliance obligation — or as an opportunity to re-engineer their policies, procedures, and operations.

It’s important to keep in mind that IFRS 17 is not just about a few new calculations that will lead to new line items in the financial statements.  In truth, a large number of topics, spanning functional, technical and organizational issues, need to be addressed.  Some of the decisions include:

• Data Extraction: Software notwithstanding, which data will you have to source, and what is missing in the current landscape?
• Allocation Processes: How will you allocate the risk adjustment? Acquisition costs? Best estimate cash flows?  Should allocation processes generally become more centralized?
• Transition: How will the transition be managed?
• User Experience: Should the finance user experience be modernized at the same time?  How can the interaction between the finance and actuarial departments be optimized?
• Reporting: How will the reporting landscape be impacted, and can (or should) real-time reporting be introduced?
• Continuous Close: Can we get closer to a continuous close and reduce the pressure around the month or year end activities?

It’s clear that tasks such as governance, functional requirements, and system adaptations or implementations fall into the category of compliance. It’s equally clear that, in a bigger picture, other aspects of IFRS 17 have the potential to trigger larger financial transformations.

We’ll draw that bigger picture in the next post on this topic.