What is IFRS 17 and why should insurers sit up, take notice and act now?
27 April 2017
- IFRS 17 can impact insurers as much as, if not more than, Solvency II
- Profit recognition for both life and general insurers set to change under the new standard
- Don’t leave it too late to start your impact assessment – now is the time!
- Register for our live webcast on Wednesday 31 May at 11:00am (UCT+1) here
IFRS 17 will come into effect in just under four years’ time. Those who are familiar with IFRS 17 will recognise the significance of this statement; but there are many who remain unaware of what it is and how it will impact the global insurance industry. This blog highlights some of the fundamental questions as well as the benefits and challenges that IFRS 17 will bring.
Let’s begin with the basics. IFRS 17 is a new accounting reporting standard for insurance contracts which will supersede the current reporting standard; IFRS 4. It is the biggest change to accounting standards for insurance companies in the last two decades combined. The purpose of introducing a new standard is to align insurance company reporting frameworks across the globe and increase their consistency, comparability and transparency. IFRS 17 is due to be formally announced in late May 2017, and will become effective on the 1st January 2021.
This standard will have an international impact. 125 jurisdictions globally use IFRS – every single insurance company that reports under IFRS will have to adopt the framework. That is a significant potential disruption to existing reporting of results for an industry only just recovering from implementing Solvency II and other regulatory capital regimes. The question is how best to comply, and how to realise the value possible from the changes to business practices that will be required to comply.
Life insurance companies are likely to experience the most significant changes to current accounting practices, but general insurers will also see changes. Speed of reporting, quality of data and system changes are likely to be the main operational challenges and cost drivers. Four years may seem like a long time, but adequately preparing for the new complexity of IFRS 17 will be a challenge. Areas from actuarial models, systems, taxation, financial reporting to balance sheets and income statements, and potentially even executive remuneration, will be affected by IFRS 17, so insurance companies should not underestimate the work required.
Get started earlier rather than later
I’m already seeing a number of companies carrying out impact assessments based upon the draft standard. These have focussed on the numbers reported, and on operational requirements, in an attempt to gauge the cost and resources required and to start thinking about how to create real value from adoption. Companies are also using the opportunity to educate their staff both in finance but also in the wider business given the implications for product. Early investment and a structured planning approach to IFRS 17 is essential if insurance companies wish to take advantage of the development opportunities it presents; or at the very least, avoid duplicating the recent spend on Solvency II in order to comply.
To summarise, only when we stop to appreciate the immense impact IFRS 17 will have on the insurance industry can we fully understand the importance of education and preparation over the next four years. Companies who grab hold of the issue early will have access to the best resources in the market, and will be best placed to shape their company’s journey and performance story in the new world.
Get more detail via webcast
If you missed our live webcast on Wednesday 31 May 2017, you can still watch it on demand here. In the meantime, if you’d like to discuss any of the issues I’ve raised here do feel free to get in touch.