Reading of the standard is, for the experienced reader, a relatively straightforward exercise. However, interpreting the requirements of the standard into actual operationalized procedures is a much more complex exercise-especially for those insurers with long-tailed policies and liabilities.

Accounting for IFRS 17 is not as simple as the debits and credits accounting for IFRS 4. It’s not sufficient to simply change where you record premium income and expenses, but rather transformed in a way that places importance on when the insurance revenue and expenses are recognized.

Developing detailed new accounting policies and a wholesale change in the chart of accounts is required as well as calculations required to appropriately report within your new Income Statement going forward. Mapping those to the data requirements for the new standard is the baseline minimum change.

Here are a few of the key implementation realities that insurers are faced with as they seek to comply with the new standard:

  • Through our experience in several IFRS 17 programs, we have seen that the theoretical interpretation can often not be achievable without significant changes to policy admin systems or other components of your end-to-end infrastructure.
  • As many companies have tried to avoid letting an accounting standard define the operational processes of running their business, there has been some debate regarding whether certain implementation interpretations meet the ‘spirit of the standard’-a happy medium can be achieved with the right guidance.
  • We have seen multiple interpretations of a few particular components of the standard:
    • Interpretation of contract boundaries to achieve a desired measurement methodology.
    • Definition of groupings, cohorts, and portfolios to meet objectives.
    • Treatment of contract modifications, conversions, and coverage additions.
    • Asset liability management and the underlying assets and yields backing the liability buckets.
    • Treatment of reinsurance and the ability to accurately determine best estimated cash flows of ceded contracts that have not yet been written.

Underpinning all of this are the data requirements, which may vary based on measurement methodologies and groupings noted above.

When these decisions come about, documentation is required to back the decisions made, with operational simplifications often developed in order to meet the standard in a practicable way while still proving they aren’t materially different from the standard.

Many front-runners have worked through these with various levels of help from consultants and subject matter experts. That experience can be integral for insurance companies who may not be as far along in their implementation, helping to avoid some of the pitfalls and jump beyond the theoretical to provide actual implementation insights.

With the runway to compliance shortening, insurers need to be rapidly examining and acting on their compliance plans. The only question left for most insurers is whether they use the opportunity of IFRS 17 compliance to simply create a minimum viable product or to truly transform their business into the 21st century and take a market leadership position.