The Five Stages of Grief - Accepting IFRS 17, Insurance Contracts

30 January 2017

Psychologist Elisabeth Kübler-Ross discovered that people go through five stages of grief: denial, anger, bargaining, depression, and acceptance. As the new Insurance Standard, IFRS 17, looms what stage are you in?

Stage 1 - Denial

The majority of people affected by IFRS 17 are still in denial. ‘The IASB have been developing the Standard for 20 years, it will never go live’. Many do not believe the standard will ever be finalised given we celebrated its 20th birthday in 2017. The IASB have recognised this and prioritised the finalisation of IFRS 17 over other projects. The IASB Chairman, Hans Hoogervorst, is focused on completing the gap in the Board’s suite of accounting standards.

Stage 2 - Anger

‘The Standard/IASB’s decisions are fatally flawed!’ Some of the most significant industry players strongly believe that the Standard is not ready. They believe that applying IFRS 17 to financial statements will not reflect the economics of their operations. The IASB have discussed the industry's concerns numerous times and IFRS 17 is their response to ensure consistency with other standards.

Stage 3 - Bargaining

Some people and organizations have moved to the bargaining phase. This is indicated by the following:

1.Why can’t I have one unit of account for a mutualized fund? By the way, contracts in a portfolio also cross-subsidise even when there is no contractual mutualisation. This is the nature of the insurance business!

2.Indirect participating contracts should be in the scope of the variable fee approach. The economics of such contracts are no different to direct participating contracts, even though the contractual terms are different.

3.Of course I can use premium allocation approach for all of my general insurance portfolios, it is largely the same accounting as I do today. Later (after 2021) I could develop systems and processes to smoothly move to the building block approach.

Stage 4 - Depression

Some who have been there from the start have now reached IFRS 17 depression. ‘It is going to be very hard’they sadly say about implementation.

Stage 5 - Acceptance

Very few people have made it to the IFRS 17 acceptance phase. However, those who have made it believe that the insurance industry does not benefit from the status quo and a change is needed. IFRS 17 gives companies the opportunity to explain to investors how the industry operates and how they compare to each other and to companies in other industries.

To survive the IFRS 17 implementation years with minimum harm, here are my top tips:

  • Consolidate efforts. This will be a massive change for the majority of players. This will be the most actuarial standard in the history of IFRS (no surprises, right? It’s insurance!). Accountants will not be able to make it alone; engage actuaries and IT developers in the early stages so they understand what is needed.
  • Make sure your top management is aware of the coming storm. No matter whether you make it on your own or involve consultants, this will require significant time and resources. Start talking to your big bosses to avoid huge surprises (they generally do not like these) and get their support and commitment.
  • Don’t wait. At the November meeting the IASB members were in absolute agreement that implementation will require at least three and a half years. Unless you retire or change employer and industry before 2021, there are no excuses.

This week's guest blogger is IFRS Insurance specialist Irina Sedelnikova. Connect to her via LinkedIn



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