IFRS 17: Are you there yet?
31 March 2020
A decision has been made. The International Accounting Standards Board (IASB) decided recently that the effective date for IFRS 17 and the expiry of the temporary exemption from IFRS 9 will be delayed by another year. We now expect the amendments to be issued in June. I know many clients and friends welcome these decisions, especially where technical policy decisions are still to be agreed or they had plans for significant technology transformation to build finance and actuarial functions fit for the future.
In our Global ‘IFRS 17: Are you there yet?’ Webcast last week, I was joined by Gail Tucker, Alwin Swales and Rika Suzuki from the IASB to discuss how insurers are getting ready to implement IFRS 17. It was a fascinating, interactive conversation that I recommend you listen back to.
Many are not there yet, and there was one question on everyone's lips: how do we use the extra year effectively?
The answer isn’t simple and it depends on where you are now. There is a spectrum of IFRS 17 programmes underway, all with different budgets and objectives. For a start, we have seen the focus range from cost minimisation (i.e. how can we deliver IFRS 17 compliance using existing technologies and processes without breaking the bank) to benefits (i.e. how can we align IFRS 17 with other finance transformation initiatives or strategic technology plans). The progress of our clients towards IFRS 17 implementation also ranges from those that have not started to those that have a working solution.
IFRS 17 Programme Pathways
Latecomers shouldn’t hold back any longer if at all possible. IFRS 17 programmes can be complex, and the effective date is unlikely to be delayed again, so now is the time to start or scale. Start with your technical policies, financial impact assessments, and use the time to identify operational simplifications. Plan for vendor selections in Q2 or Q3 2020 - as next releases will be available - and aim to complete build and test by H1 2021. Finding the appropriate resources in the market is already an observed challenge; don’t leave it until too late to mobilise a strong programme team.
As an Accelerator, who had only just started picking up momentum and landing technical decisions following recent amendments to IFRS 17, you were probably hoping for this delay. It’s here. Keep the momentum up and aim to complete your build and test in H1 2021. You may be able to use the extra time to reassess the scope of your programme, consider various benefit cases, and be strategic in your spend and solution. For example, an investment in a new General Ledger or analytics platform may now be appropriate. H2 2021 can be used as contingency or to drive operational efficiencies, such as replacing manual processes with RPA solutions or developing more insightful management information (MI) from the data and results available.
Strategists, those who were undergoing a finance transformation that included meeting the new IFRS 17 requirements, are in a comfortable position and should aim to complete build and test in 2020. Optimise technical policy decisions, review product and underwriting decisions, and trail new IFRS 17 MI in 2021. Many clients haven’t developed their financial and actuarial KPIs - and this could be an opportunity to test various options and streamline the reporting process. 2021 can be used to upskill your workforce in IFRS 17 metrics and digital fitness, drive a digital, automation efficiency agenda, and enhance data insights.
If you’re the Early Bird, who had started before others to meet the original deadline and wanted minimum impact on systems and technology solutions, you must keep momentum up to complete build and test in 2020. You can avoid additional cost and provide time for contingency and embedding into business as usual. 2021 could be used to drive operational efficiencies - whether that’s through developing insights from your data or process re-engineering. With an operational IFRS 17 accounting engine in 2021, you have time to manage expectations over the changes to disclosures by thinking about the transition, explaining the numbers, and communicating with stakeholders.
Of course, for all companies around the world, there are now more pressing issues at this time than their IFRS 17 programmes. Nevertheless, it is worth considering the above recommendations in the context of the wider social and business agenda and seeing what can be done right now to keep momentum in existing projects or kick-off projects yet to start.
Our message is clear. Whatever you do, use the additional year in the most effective way possible. Leave enough time for contingency, testing and transition. Revisit your business case, revisit your programme plan, and let’s deliver by the effective date in 2023.