When your industry is going to be turned on its head by something, the sooner you can start planning – or at least thinking about it – the better. The new International Financial Reporting Standard 17 (IFRS 17) will come into force in January 2021, and it’s set to completely upend the insurance industry. The year 2021 might sound like the distant future, but firms must be careful not to be lulled into a false sense of security by the long lead time.
IFRS 17 represents the biggest shake-up of insurance reporting standards for decades. Designed to increase financial transparency in the sector, it obliges insurers to report in more detail on how new contracts are affecting their finances and risk. Bringing systems and processes up to speed with IFRS 17 will be no small task. Most firms do not yet have the computational ability to cope with the complex calculations.
The good news, however, is that according to new research from SAS, UK insurers are aware of the challenge ahead and are already beginning to prepare. Nearly all (97 per cent) of those surveyed realise that IFRS 17 will increase the cost and complexity of operating in the market, and 90 per cent believe that the cost of compliance will be more than the Solvency II Directive. That’s a heavy load to carry, which is probably why more than half (61 per cent) have already started preparation for the changes and 19 per cent consider it a top strategic priority.
There are many challenges ahead for insurers in meeting the new standard. Significant investment will be needed in training, as well as updating actuarial, accounting, data and analytics systems. IFRS 17 isn’t going to be any one department’s problem – it’ll need the buy-in of the whole company.
Compliance will be difficult to achieve by simply adapting existing systems. It’s likely that IFRS 17 will grow in complexity as the deadline approaches – the regulation remains far from complete. As such, it’s very possible that legacy systems won’t be able to meet the new requirements in the time permitted under the new legislation. Pursuing minimum compliance at minimal cost may leave insurers suddenly exposed. A fresh approach is clearly needed.Don’t “do a GDPR” and wait until the deadline to get serious about #IFRS 17. #IFRS17 #Insurance Click To Tweet
The flexible, integrated approach
Insurers should adopt a flexible, iterative strategy for IFRS 17. Firms need to be able to change tack as required without incurring unnecessary additional cost or wasting resources.
While it’s important to remain cautious about committing too early, that doesn’t mean that insurers should delay compliance projects altogether. Preparation will help avoid surprises and increased workloads down the line.
Handling data better
So what exactly should businesses be looking for at this point? Given that the regulation is focused on reporting, processes that emphasise data management and integration are a good starting point. This enables companies to locate and sort their data and decide how best to handle it.
Implementing a data-bridging platform between systems can help companies cope with the new requirements while taking the strain off production systems. By delivering efficient, transparent data collection, transfer and storage, it helps facilitate both easier information sharing and transparency.
Not only could a bridging platform help keep the business running, it will add functionality that can improve decision making across the business. The easy flow of data it facilitates can also be replicated to improve speed and efficiency in other departments.
IFRS 17 holds both challenges and opportunities for insurers, but those opportunities can only be realised if companies grab compliance by the horns. Working to build a truly integrated organisation that connects data, systems and personnel in a transparent way is the key to achieving compliance and business success.
It’s encouraging that 84 per cent of companies that took part in our survey recognise there will be benefits to their business beyond compliance.
Don’t “do a GDPR” and wait until the deadline to get serious about IFRS 17. Plan now; keep an open mind and a flexible approach to IT; and roll out the beneficial side-effects to the whole company.
Find out more about how insurance companies are gearing up for IFRS 17 in our report A Transformation in Progress: Perspectives and Approaches to IFRS 17.