Unlike some of the newer regulatory issues such as consumer privacy, International Financial and Reporting Standards (IFRS) have been around for more than 40 years. It was designed as a common global language for financial affairs as an attempt to standardize accounting across the European Union, but over time it has evolved and been adopted by the majority of countries across the globe. However, the changes that are part of IFRS 17 are the most comprehensive and impactful in almost 20 years.
Financial reporting ñ especially for large, multinational insurers ñ can be complex, and new accounting standards like these can have an impact on the value and financial position of an insurer. So, it's not surprising that insurance organizations want to take a proactive approach to IFRS 17, which is set to take effect in January in 2022. My Appian colleagues have been blogging about regulatory and compliance issues recently, so I thought this would be a good time to weigh in on a topic that is top of mind for many of the insurers that I am currently working with.
Understanding the operational impacts of the new accounting standards is a key first step. Furthermore, this can be used as an opportunity to review your current accounting and technical landscapes to ensure that the choices you make now can have long-term, positive benefits for your organisation.
As the IASB chairman stated, "The discount rates would increase comparability between insurance companies and between insurance and other parts of the financial industry, such as banks and asset management."
Description: Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk, where a discount rate will reflect current interest rates.
Benefit: The new rule is to provide a better view on the value of an insurer and the comparability between them.
Impact: Concerns exist at insurers about the impact of this new accounting rule on their income statement, processes and systems, and implementing a new standard with new rules is risky.
Solution: Approach this as an opportunity to implement a flexible, future-proof technology architecture, changing existing operations to decrease manual processes that are complex and error-prone.
For insurers, there is concern about the impact of this new accounting rule on their income statement and their processes and systems. Hence understanding the operational impacts of the new accounting standards is key. The processes required to create and consolidate these IFRS 17 reports are very complex, specific to each organisation, and are subject to change. Insurers will need sophisticated task management with the ability to easily change and control many complex processes that could each involve thousands of discrete tasks.
As with the other regulatory and compliance issues, creating a roadmap ñ with input from all of the business and technical stakeholders in the organization ñ will enable you to make the appropriate implementation decisions and drive the path to success. Insurers need to consider their policy and claims portfolios, processes, organization, and technology to create a holistic approach to managing IFRS 17, from the initial scope through to the vision of an integrated operating model with a flexible technology platform.
In her recent blog post, Eileen Potter, our marketing lead for insurance, discussed some of the reasons that a low-code platform ñ combined with BPM and case management ñ is the optimal foundation for insurers to use for their compliance management programs, enabling the speed and power to rapidly build applications, the agility to make changes, and the oversight to maintain visibility into processes all while controlling IT spend.
Now is the time to start thinking about IFRS 17, and work on the operational solution in an agile way. I'd welcome the opportunity to talk through the new regulations and assist with putting together a plan that would work for your organisation. Feel free to reach out to me via email or connect with me on LinkedIn. And, if you are going to be in Las Vegas for InsureTech Connect 2019, please schedule a meeting. We'll be at booth 825, so please come by and meet the Appian insurance team. I'm looking forward to a great conference!
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