This is the third blog post in a series on IFRS 17 implementation and what insurers need to consider. This one discusses questions about architecture and the importance of a systems approach to provide end-to-end coverage.
Getting the architecture right for IFRS 17 implementation will need strong collaboration between different departments, including policies, actuaries, accountants and IT. There are a number of areas of interpretation of the IFRS 17 principles, and they need to be carefully integrated.
Insurers also need to determine how to apply IFRS 17. Its principle-based approach requires some time to clarify a standard interpretation that will also allow some flexibility for the future. Different regional perspectives, e.g., EU vs. Asia, need to be integrated, and insurers need to define how IFRS 17 can be implemented in a way that supports the company’s Fast Close deadlines.
Defining an IFRS 17 platform
The IFRS 17 platform will be the new, big architectural component. It will need to include central data storage to cover all necessary central calculations, detailed audit trails and postings. To my mind, it will have to address five key requirements, bearing in mind that this infrastructure will be used for at least the next 10-15 years:
- Full coverage of regulatory and business requirements, including all the calculation methodologies (BBA/GMM, PAA and VFA approach).
- Predefined models or content for finance and risk.
- Flexibility and scalability.
- Seamless integration with the existing architecture.
- Powerful and reliable solution provider.
Developing a project road map
Although the effective date is 2021, it would seem sensible to aim to be ready in 2020. This will allow companies to avoid a sudden, last-minute approach. It is particularly helpful in managing the risk of things going wrong without time to put them right. There is, after all, no Plan B should implementation take longer than you thought. Early implementation will also allow learning and provide comparative figures.
It is likely best to avoid interim solutions and instead find efficient waves within the project. Quantitative impact analysis should start in 2018-2019, and the time required for transition should not be underestimated.
In purely pragmatic terms, it makes a huge amount of sense to think about keeping the current closing calendar. This means that you can define end-to-end processes early on, and also do early testing. On the subject of testing, strong end-to-end integration testing is most definitely recommended, as is joint ownership of the global integration test and transition, involving business, actuarial, accounting and IT. Finally, a dose of healthy pragmatism never went amiss on a major transformation project. In other words, do not be tempted to over-engineer and bite off more than you can chew.Get the architecture right for IFRS 17 implementation before effective date 2021 and don't overengineer and bite off more than you can shew. #IFRS17 #Insurance Click To Tweet
Perhaps the most important thing to remember is that there is a very clear time constraint on implementing systems to manage IFRS 17. The deadline is the deadline, and 2021 is not far away. This should drive every decision, from what to include, to what approach to take. Insurers would do well to pare everything down to the bone to avoid overloading the project. Other ideas – such as using IFRS 17 as a way to drive a major financial transformation – can be left for later, when the system is up and running, and you know it does what is absolutely necessary to meet regulatory requirements. Yes, this is a good opportunity, but it is also a major headache if you mess it up.
It is likely worthwhile to plan for an early end-to-end test to get your individual first lessons learned. This should help to motivate the project teams, which is important because this is a long journey and it will be essential to keep them going. The other advantage of an early end-to-end test is that it gives more time to make changes as a result.
A long-term investment
IFRS 17 implementation means making a long-term investment in a system that will be used for the next 10-15 years. I think it will be worth going for an integrated approach, based on an open and scalable platform. This should be designed to be able to manage both today’s and possible future requirements of IFRS 17. It will also help in orchestrating the entire end-to-end process, without too many sleepless nights. It therefore represents the very best in pragmatism!