IFRS 17 (Insurance Contracts)

What is IFRS 17?

IFRS 17 was created to replace IFRS 4 Insurance Contracts, which lacked the rules for comparing contracts between companies.

Through a single accounting model for all insurance contracts, IFRS 17 aspires to create consistency, transparency and improved confidence in insurance contract reporting. The standard aims to expose the obligations, risk, and profitability of insurance contracts.

IFRS 17 seeks to provide more comparability between:

companies across borders
insurance contracts
industries

IFRS 17 will benefit stakeholders by creating a more apples-to-apples comparison of global contracts. Since filers must disclose more useful and actionable information, the new standard will inevitably contribute to higher long-term financial stability.

What is necessary to be compliant with IFRS 17?

To comply with IFRS 17, affected organizations will have to:

Redefine corporate data management structures. Organizations will need a firm grip on their corporate data management. They should have access to and control of data governance, lineage and transparency across the entire reporting chain. To comply easily, organizations will need access to report on a wide range of historical, real-time, and predictive data.
Overhaul reporting and operating models. The approach to reporting that IFRS 17 requires (The Building Blocks approach and the Premium Allocation Approach) will necessitate changes to your financial management processes and your operating model.
Navigate the gaps between IFRS 4 and IFRS 17. IFRS 17 requires more in-depth and more detailed data and reporting than IFRS 4. Complying organizations will need to do a gap analysis to ensure their processes, systems, and data requirements are tuned to the new regulations.
Manage operational risk and costs. There is a cost to changing your existing processes and adopting new methods. To comply with IFRS 17, organizations will incur a human resources cost, time cost, and financial cost.
Rewire existing reporting processes. IFRS 17 will impact the architecture of reporting processes including operational systems, actuarial models, general ledgers, consolidation and performance management systems. Each organization will need to audit their financial processes and software to ensure the tools they’re using meet their new needs.
Perform new measurements. IFRS 17 requires new measurements for internal revenue, profit metrics, and external reports.
Conduct advanced planning and forecasting. Organizations will need to implement advanced forecasting technology that can perform simulations to provide reliable financial forecasts using granular information.
Determine the impact on assets and liabilities. IFRS 17 will require organizations to up the ante on their asset and liability management programs.
Implement new systems. To handle IFRS 17’s impacts, organizations will have to implement new systems that are fit to manage their needs today and in the future.

When will IFRS 17 be effective?

On January 1, 2022, IFRS 17 Insurance Contracts will come into effect for all insurers who are subject to IFRS standards.

Who is impacted by IFRS 17?

If your company issues insurance contracts and you’re subject to IFRS regulations, then IFRS 17 applies to you. For the most part, IFRS 17 affects companies in the insurance industry. If you had to comply with IFRS 4, then you will have to comply with IFRS 17.

How to implement IFRS 17?

All impacted filers will have to:

Understand the ins and outs of the IFRS 17 requirements.
Perform a gap analysis on IFRS 4 vs. IFRS 17 process needs including corporate data governance, architecture, corporate performance management system, reporting processes.
Ensure data governance, lineage, and transparency across the entire reporting chain.
Have access to a wide variety of historical, real-time, and predictive data including policy and premium data, data used to produce the risk adjustments, data used to generate cash flow projections.
Revisit their current performance and financial management systems and data strategy. New software may be required.
Implement end-end-end data and architecture flow, data processes and policies.
Make changes to the general ledger using the building blocks approach.
Change the way they disclose short-term contracts using the premium allocation approach.
Make changes to systems and data requirements that allow organizations to collect more granular data.
Make changes to profit recognition patterns.
Increased disclosures for greater transparency.