The International Accounting Standards Board (IASB) has recently published its proposed amendments to IFRS 17 Insurance Contracts. The amendments seek to make it easier for insurers worldwide to implement IFRS 17, a standard aiming to improve comparability in the sector, increase transparency on business profitability, and generate more insights on individual firms' financial health.
A call to action for insurers
With these changes, the final state of IFRS 17 is coming into view. That means that any insurers experiencing project fatigue must now assess their progress and reinvigorate their implementation processes. For any who have not yet made meaningful progress, it's a starting gun for a marathon. While the new amendments are helpful, implementing IFRS 17 is still a complex and significant undertaking.
The bigger picture of IFRS 17 (and IFRS 9)
IFRS 17 was issued back in May 2017. Since then, the IASB has been monitoring and supporting its implementation, observing the challenges that arose for insurers and other stakeholders. Thus, these amendments—which span seven important areas—are meant to help ease the process. The IASB has additionally proposed that IFRS 17's go-live be postponed by one year, to 1 January 2022.
Another standard, IFRS 9, required most companies to begin accounting for their financial assets and liabilities in 2018, but insurers meeting certain criteria were granted a temporary exemption. That exemption would have expired on 1 January 2021, but the IASB has proposed extending it to 1 January 2022—the same day that IFRS 17 becomes effective.
The extra time should be welcomed by insurers, who now have an extra year to deal with issues like accounting for commissions paid to win insurance business; how to reflect the economic realities of insurance contracts that also provide investment services to policyholders; and recognizing the impact of reinsuring loss-making business.
Implications for data and IT
Implementing IFRS 17 also poses an excuse—not that any more excuses are needed—to redesign or update how data flows through the organization. Moving towards a holistic data strategy is key in tackling not just this standard but future standards, so that data can be flexibly and effectively processed for a variety of uses. IFRS 17 will be demanding on IT capabilities, so the better equipped firms are digitally, the better.
Banks will be pleased to learn that the amendments will allow them to continue applying IFRS 9 to certain types of credit cards and loans that also provide insurance coverage. IFRS 17, as originally drafted, would have required them to apply insurance accounting to these products—but this would have been a major burden for them, coming so soon after they update their systems for IFRS 9 compliance.
Out with the old
IFRS 17 is set to replace IFRS 4 Insurance Contracts, a standard that has allowed insurers to continue using legacy local insurance accounting practices. In other words, the impacts of IFRS 17 will far surpass the accounting realm: actuarial, IT, investor relations, and human resources will all be affected too.
The IASB has requested that insurers and other stakeholders submit their comments on the proposed amendments by 25 September 2019, with a view to finalizing the standard in the middle of 2020. This is insurers' chance to assess their needs and contribute to the conversation—and to the future of the industry.
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