In January 2023, the introduction of the IFRS 17 accounting standard (which we will refer to in this article as ‘the Standard’) created a notable change to the reporting, data, and accounting systems across the organization for (re)insurers in more than 100 countries across the globe. Meeting the requirements for such a change means that selecting the right software solution is critical.
We observed three main challenges during customer implementation projects:
1. The magnitude of the new standard required a complete overhaul of the actuarial and accounting processes for insurance contracts
There were fundamental changes to the presentation of results in the income statement and the balance sheet. Resulting in the requirement to implement new complex calculations and processes, make transition adjustments to reserves, and manage a higher amount of data.
2. Timeline for Transition
The final amendments to the standard were published in June 2020, with an effective date of January 1, 2023; (re)insurers faced an uphill challenge to ensure timely compliance. The need to change existing systems and processes complicated things further, against a backdrop of well documented, global resource constraints, and the necessity for high-quality delivery.
3. Global Industry Alignment
Financial statements must be comparable across the insurance industry and with other industries, however a principle-based accounting standard allowed for multiple interpretations and created uncertainty. There were also local reporting requirements to consider (for example statutory).
In response to the challenges, we developed a strong core team of subject matter experts (SME) to define our methodology and interpret the Standard.After successful implementation and on-time production of more than 120 customers, we have used our experience implementing our solution worldwide with several certified partners, to share our top 10 lessons learned from IFRS 17 implementation. Whether you are in a country that is yet to adopt the standard, looking to improve your production processes, or are meticulously planning for any future changes, sharing our experience will help your project progress.
Learnings
1. Identify early, the key accounting policy choices that will have a material impact
A successful IFRS 17 accounting policy must be auditable by default, but also consider how all principle-based issues are resolved. (Re)Insurers need to consider their priorities carefully, seek advice when necessary, and allow for the opinions of the local regulator where available. It is essential to identify up front, the accounting policy choices from the new principles that will have a material impact on the financial results. It becomes harder to implement and justify a change to an existing accounting policy choice the further the implementation project progresses. Many struggled with the number of principles and possibilities. However, with a collaborative approach between the company, consultants, auditors, and software providers; a consensus was achieved, and many principles have now become market practice all across Europe.
2. Link actuarial and accounting data together
Adequate disclosures from Accounting and Actuarial departments require more than high-quality source data. The accounting disclosures require new data and results (such as CSM, loss components, and new revenue lines) at different granularities. This is because IFRS 17 groups separate for profitable and loss-making contracts. They also demand a different way to treat the inputs (for example cash and accrued premium receipts). The actuarial data has gained visibility and stakeholders must understand it now more than ever before. IFRS 17 requirements have changed how actuarial data flows into accounting systems, so a robust and transparent process is needed to avoid manual intervention.
We have learned that linking the accounting and actuarial data together offers flexibility for decisions such as whether an adjustment to the calculations is made in the actuarial calculations, or accounting system. Outputs from the actuarial systems will also be used more often to assess the profit and loss statement. Therefore some (re)insurers have also begun to conduct a total review of their actuarial systems, including the data feeds.
3. Review existing processes and systems when implementing changes to accounting standards
(Re)insurers can update their existing systems sufficiently to report IFRS 17 figures on time. Or they can take the opportunity to review and change the full spectrum of systems and processes. While updating old systems might be seen as the quickest, easiest option, our experience has suggested that an in-depth review is beneficial to find the optimal solution. It does not necessarily mean a change to every step or tool. Reviewing and challenging processes and applications makes way for new, more effective solutions and adaptations of processes. Different solutions fit different needs, and a true gap analysis points to the most suitable solution. In our experience, phased, full changes have been more effective in reaching a streamlined process.
4. Create a governance structure for the implementation project
After you have identified your path forward, transformation and implementation require a robust course of action, and a strong governance framework to support this. There are critical factors to consider under usual project governance best practice:
Senior management sponsorship: The individuals who will arbitrate and make quick decisions during implementation.
Gap analysis: Identify all areas of the business that the standard will affect (data, processes, systems, methodologies, operating model). Stakeholders should remain fully involved in this process.
Project management: Given the magnitude of such a change program, strong project management is necessary for a robust implementation plan and project monitoring.
Team assembly: Choose team members with relevant experience in actuarial science and accounting, with appetite to embrace change. They should already be prepared to bring the deployment to its Business as Usual final state. The team must include internal resources, but also the right partners and external support (e.g. consultants, third-party providers).
Training and knowledge transfer: It is fundamental that your internal team is involved from the start. Ensure that they receive appropriate training on the Standard and thorough knowledge transfer on the tools to be implemented from the most relevant people (whether internal, consultants, or third-party providers).
5. Communicate regularly across teams
As the project involves several stakeholders, regular check-in meetings are essential to the implementation of the chosen solutions. These should include all relevant internal and external teams. Strong project management is critical, but good governance and communication enable efficient and effective decision-making, heading off any challenges or blockers in a suitable timeframe. A culture of engagement, collaboration, and commitment are necessary to overcome hurdles during implementation.
For IFRS 17, one of the most important collaborations was between Actuarial and Accounting reporting teams. The nature of the changes in financial reporting required much closer integration and exchange between these specialized skillsets, to achieve the implementation objectives.
6. Use strategic partners with experience
Implementing IFRS 17 requires expertise across actuarial, accounting, IT, and project management. (Re)Insurers turned to third parties who could offer local actuarial, accounting, and technology expertise for the implementation of their chosen IFRS 17 software. It was important for companies to develop their own competences and knowledge around the interpretation, and the results of the new methodologies. However, many recognized that partnerships could speed up knowledge acquisition, and support software deployment activities.
We recognized the role that these strategic partners would play in helping (re)insurers implement our solution to the Standard. Therefore, we built a robust Partner Program to ensure we work with firms that have the right skill set and are fully enabled to deliver our end-to-end software solution. Our partners are certified to implement our RiskIntegrity™ solution for IFRS 17, therefore they have been fully trained and have dedicated support from us when working with our customers.
7. Choose the right software
Whether you choose a full new model or make amendments to existing systems and processes, there are still likely to be new software requirements. Leaving behind the old world of on-site hard installations, an agile SaaS (Software as a Service) solution has become the most popular choice. The ability to connect in-browser reduces the effort required from IT teams, and therefore offers a significant advantage and improves the customer experience. These types of solution help reduce lifetime costs and implementation timeframes. A vendor-maintained option ensures ongoing compliance, a standardized interpretation, and comparability of results. This enables quicker implementation, benefiting from a seamless version upgrade and patch delivery process managed by the software provider. In contrast with self-developed solutions, software providers offer accelerated support and quicker troubleshooting.
8. Conduct lessons learned reviews during the implementation
Learning from the past to build the future is achievable when the experience is tracked, analyzed, and embedded in all processes. It requires open-loop feedback, where the (re)insurer and the software providers allocate time to the various stages. Some areas we have found useful to focus on are:
Processes: Conduct a thorough review of the project, what went well, what could be improved, what would you do differently next time?
Communication: Develop a comprehensive strategy around the best communication methods to ensure that the various messages are aligned and coordinated among the different teams. Offer an exchange platform for process and system users to give feedback, discuss best practices, and collaborate with each other. This could be internal or offered by the software provider.
Ongoing success: External providers should detail their plans for guiding (re)insurers in their journey and maximizing the experience to ensure satisfaction. Ensure ongoing access to up-to-date training material and documentation. External providers should assist with and monitor support cases and enhancement requests, in collaboration with the project teams and partners.
9. Produce a plan for transition from implementation to production
After the project is finalized, there is an ongoing relationship between the (re)insurer, the software provider, and any partners involved. We have learned that the most successful implementations are those that have developed a learning path to help users in the deployment and use of the new software and processes. Keep a comprehensive knowledge base toolkit, including data directories, report mappings, posting logic, demo videos, and articles. In addition to this, a Quick Start methodology offers detailed training at the beginning.
10. Produce a plan for the regular ongoing maintenance of new systems
In our experience, the production of the first set of results for the new Standard is not the end of the process. Future regulatory changes and ongoing improvements to the software require an implementation plan and a good relationship between the software provider and the (re)insurer. It is good practice to have a testing and upgrade plan which is aligned to the vendor release management strategy and your own internal reporting timetable.
Conclusion
The IFRS 17 journey is still at a relatively early stage, although most countries have now implemented the standard and many companies are well prepared to face the challenges.
To date, (re)insurers that followed an approach aligned with the recommendations in this article, are effectively reporting figures using a straight-forward process. Others are still struggling with some of the steps of the reporting journey for various reasons; for example, their internal solution is not fully developed, skills gaps, or delays in the implementation journey. Many others are unaffected. Some local regulators have decided not to implement IFRS 17 or similar schemes for local Generally Accepted Accounting Principles (GAAP) purposes. Others have decided to defer adoption to a later reporting period. The late adopters should seek to benefit from the recent experience and learnings of others, to be as prepared as possible when the time comes.
One remaining challenge for many companies, and the next one to tackle, is the capacity to analyze more deeply, perform sensitivities, and create projections under the new standard.
Moody’s Analytics RiskIntegrity™ solution for IFRS 17 provides an IFRS 17 subledger including engines for data manipulation, calculation, accounting, and reporting. These engines are agnostic to the upstream and downstream systems and interact seamlessly with the AXIS™ Actuarial System to ensure smooth data processes for clients using both systems. Our solution manages the complexity of the additional requirements for reporting under IFRS 17 and bridges the gap between actuarial modeling systems and accounting general ledgers. By integrating with (re)insurers’ existing systems, our solution helps (re)insurers boost their return on investment in existing actuarial models, accounting systems, and processes. Speak to our Experts about how we can help with your climate-related modeling needs.
