IFRS 17 is a major transformation in the way insurance companies are currently accounting. This standard will bring many changes in the insurance industry. The items which are significantly going to be affected are the provisioning for the receivables, booking of earned premium, recognition of claims, estimating reserves, actuarial estimates, provisioning for IBNR, reinsurance claims and reinsurance premium.
Implementation of IFRS 17 cannot be done single handedly or by a single person. It would require a collaborative effort of experts of different disciplines. Management needs to understand and decide on strategic nature issues of the transformation process. Actuaries will provide guidance on changes to the reserving methodologies. I.T teams need to assess the capability of existing infrastructure and its compatibility with the requirement of IFRS 17. Finance needs to ensure correct transition at the time of system upgrade and ensure correct accounting rules application.
The implementation date is 1 January 2022 and it is two years away from now. Many organizations have not yet taken concrete steps in the implementation of IFRS 17. Some are in the process of negotiating with a implementation partner while others are still having intermittent internal discussion. Some of the organizations are quite fast and they have already signed agreements and things are set in place to start working on the designing and implementation of IFRS 17.
Regulators of insurance sector, all around the world, are also taking special interest in the implementation journey of IFRS 17. Since, the new standard is going to significantly impact the insurance industry and regulators have to ensure that the interest of the policy holders are protected appropriately, they need to monitor the compliance with IFRS and its impact on financial stability and solvency of the insurance companies.
A change in the existing accounting systems is a must in order to meet with the requirements of new standard. There are several functionalities which are required but not available in the legacy systems of insurance companies. The changes to the systems, their testing and the final implementation is going to cost significantly in terms of money, time and effort.
All these challenges are bringing lots of opportunities as well, especially in the job market, many new positions are about to be created. Organizations would need project managers, implementation partners, consultants, IFRS experts, actuaries, database administrators, data anlysts, financial analysts and investment advisors. IFRS 17 implementation would require a handful expertise from different disciplines. This is the right time to acquire these skills and pitch for these positions in the insurance sector.
How will the shareholders of insurance companies be affected by the implementation of IFRS 17. This is a big question mark and there are different aspects which can lead to different directors. For example, the increased cost of the compliance would initially result in higher expenses and thus will decrease the profits. Increased requirements for solvency, strict criteria for booking provision and recognition of the provisions for receivables at the early stage of policy booking would all lead to lower net profits. However, on the other side, the new standard would enhance investors’ confidence on the financial reporting. It would also provide additional opportunities of financing and funding insurance companies and thus trading would boost.