By CPA Arnold M Ainebyona
IFRS 17 implementation
Executive leaders must communicate effectively with implementation teams, suppliers, and key stakeholders
IFRS 17 is the latest global accounting standard that regulates how insurance contracts should be reported, measured, and presented in financial statements. The new standard comes with significant changes, including redefining how insurance liabilities are measured, introducing of discount rates, and recognising the income associated with the insurance contract over its entire life cycle. The implementation of IFRS 17 is expected to have far-reaching effects on the insurance industry’s operations, finance, and IT systems.
When I was requested to share my experiences as to the implementation of this new standard, I must admit to having been thrown into deep thought as to what practical experiences I have had while concurrently feeling the anxiety of inadequacy because of the new lessons/knowledge components I continue to pick up every day working through the transition packs. As an accounting professional, you must ready yourself to be a reliable reference to the interpretation of the impact of the standard. This responsibility is heightened if you head a finance or actuarial function with a direct need for managing stakeholder relationships such as those with the company Boards of Directors, regulatory, and the tax authority.
There will be broad approaches to the implementation of the standard, but it is helpful to approach the implementation in a project mode with clear milestones defined which include but are not limited to defining and classifying contract groups, a critical first step in implementing IFRS 17, setting up actuarial systems to meet the new standard’s requirements. Additionally, companies may have to develop new methodologies and techniques to calculate and manage insurance contracts’ financial performance over their life cycles. The establishment of cross-functional teams working to ensure that the implementation process is successful due to the far-reaching implications of the standards is key.
Several factors facilitate a smooth rollout of IFRS 17 for insurers
Investment in new technology, including actuarial software and automated financial reporting tools. These tools enable insurers to perform the complex calculations necessary for IFRS 17 compliance accurately and efficiently.
Furthermore, companies may want to seek external training and expertise from consultants to supplement their in-house expertise. This will enable many firms to stay on track and deliver high-quality results. Training cannot be emphasised enough. This should not be limited to the accountants/finance functions but should be extended to all company functions and those charged with governance to facilitate reasonable oversight.
The other major enabler is the implementation of agile methodologies by insurers. By adopting agile frameworks, companies will be able to deliver solutions iteratively, which allows them to manage project risks, rework, and change requests. Additionally, agile methodologies will allow companies to respond quickly to the evolving requirements of IFRS 17.
Lastly, senior management’s involvement in the implementation process plays a critical role in ensuring that insurance providers deliver on their IFRS 17 obligations. Executive leaders must communicate effectively with implementation teams, suppliers, and other key stakeholders throughout the process. This allows them to stay updated on progress regularly and provide direction when required.
The IFRS 17 implementation process will not be without its challenges. One significant challenge is the high costs associated. Companies have to spend significant amounts of money on new tools, technology, and consulting fees to ensure compliance with the new standards.
Secondly, you will not be in isolation if you encounter significant challenges in redefining the contract groups. The complexity of IFRS 17’s requirements regarding contract grouping means that several companies will struggle in this area. This aspect of the implementation process may be worsened by more complicated IT systems that were not designed to support IFRS 17’s requirements.
Thirdly, the implementation of IFRS 17 has required substantial changes to actuarial models and other financial systems. This has posed some significant challenges for many companies, particularly those with complex IT systems. Thus, the process required significant investments in time, technical resources, and financial capital.
There are significant data management challenges as one works to incorporate massive amounts of data from various sources, including actuarial data and financial data. The new processes and technologies required to manage this data require significant effort and resources to implement adequately.
The implementation of IFRS 17 has made it clear that ensuring disclosure and transparency in financial statement reports is crucial. With the adoption of the new standard, it will be much easier to understand the liabilities and financial performance of insurance companies.
It is expected that the new standard has increased transparency and comparability among companies. This means that investors will be able to compare and evaluate the financial performance of companies much better, and analysts will be able to create better benchmarks.
Implementing IFRS 17 has been and continues to be a monumental task for insurers, with many companies encountering significant challenges along the way. If you are handling an IFRS 17 implementation project or are part of the project team, my advice is that you ask questions. It also gets easier when the results start to trickle in. Besides, IFRS 17 implementation challenges may be comparable to the sorrows of Frida Kahlo, who tried to drown only for them to learn how to swim. It is upon us, accountants with actuarial counterparts, to focus on the positives after a successful implementation. The adoption of new technologies and methodologies will ultimately improve the transparency and comparability of financial reports in the insurance industry and boost investor confidence.
With the right investments in technology, workforce, and appropriate methodologies, insurers should be able to achieve a successful and efficient rollout of IFRS 17, with benefits for the companies themselves, regulators, and the wider economy.
The writer is the Chief Financial Officer
Sanlam Life Uganda Limited