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IFRS 17 - Practical Tips and Lessons Learnt (Part 3)

Final blog in three-part mini-series on practical tips for IFRS 17, which highlights key “considerations” regarding practical aspects to consider before the implementation at the start of 2023.

Part 3: Strategic and Practical Implications

Introduction

This is the final blog in our three-part mini-series on practical tips for IFRS 17 and its implementation at the start of 2023. This final instalment highlights key “considerations” regarding practical aspects, such as technology and systems, as well as wider strategic business implications, which are a result of the new standard.

Practical Considerations

The technological and systematic elements that exist within the business must be aligned correctly to allow effective implementation of the new standard. Ultimately, there is a need for simplicity with the recommendations; less is more. These considerations have been broken down into the areas below.

I.T.
- Can your current systems cater for the new requirements?
- The more tailored the technological infrastructure is, the better the flow of data within the business, however, the more operational costs increase.
Data
- More granular data is required under IFRS 17.
- Is there a data dictionary that defines the data points? Are there procedures in place to ensure detailed data is collected and stored correctly?
- There should be easy accessibility to data created by the development of new data management capabilities.
Software
- Choose a system that best suits the type of data that is being processed and the nature of your business.
- Customise the actuarial methods and modelling capabilities in the software.
People
- Provide training to your staff on the requirements of the standard.
- Prepare technical papers to your Board of Directors documenting all approaches, assumptions, and customisations, for example.

Strategic Considerations

The second section contains the factors that need to be considered within the wider business. More specifically, the wider business will also need to be involved in the adoption of IFRS 17. Ensure the business has a comprehensive understanding of the impact that the standard will have on business operations and strategy. These factors have been outlined below.

Broader value chain.
- It is a disruptive standard; it doesn’t just affect accounting or actuarial, it affects the entire value chain of an insurer or reinsurer.
Asset-liability management.
- There is a need to be conscious of inflation risk, as the standard stipulates that if inflation is linked to an index via a clause (for example), then inflation should be treated as a financial risk, not an insurable risk. This will trigger different reserves.
Interactions with rating agencies.
Stakeholder education / training.
- CFOs have mentioned concerns that have come about regarding how to explain the business plan story.
Employee bonus schemes triggered by financial results.
- Need to consider whether these schemes need to be recalibrated to reflect the changes brought about by IFRS 17.
Tax / auditor / regulatory interaction.
Product development and distribution agreements.
- Businesses look to simplify and streamline products to make accounting easier (such as not having numerous riders per contract, and rather combining them).
- Clients rearrange contracts with brokers to secure not only the economic outcome they desire, but also accounting preference.
- This may have an impact on the pricing strategies adopted.
Reinsurance strategy / buying practices.
- More reinsurers are pushing to obtain more detailed data, potentially commercially sensitive data, to be able to effectively value the contracts.

How Marsh Can Help

If you work for an insurance company or captive that reports under IFRS and are concerned about implementation, get in touch with the Marsh Actuarial Solutions team to discuss how to prepare for a smooth transition.