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Three simple ideas can take the panic out of your prep for IFRS 17
Preparing for IFRS 17 – core decisions and ideas to consider early
IFRS 17 will require companies to overhaul underlying account systems. It introduces a new measurement of insurance liability (contractual service margin) and makes risk adjustment and discounting of future cash flows necessary. The operational impacts are considerable: additional policy and reinsurance data will be necessary, more granular cash flow will need to be analysed, and there will be new presentation and disclosure requirements. And designing new systems to integrate all of these changes will be even more difficult because of legacy systems and bespoke technical workarounds that many insurance companies have added over the years through multiple acquisitions and tactical fixes.
But there are steps you can take to navigate these changes. The first is to look beyond the technical interpretation of the standards and give attention to the operational impact of IFRS 17. In this article we’ll discuss the core decisions and ideas you should consider early on to make sure your company’s operations can adapt and thrive under the new rules.
IFRS 17 Soft Design
A soft design process can help insurers identify an effective IFRS 17 technology solution and operating model | Duration 4:31
Take a “Soft Design” Approach
Many insurance companies have already conducted an impact assessment and so, at a high level, understand the gap between what they have and what they need. Where you might be stuck is in making the leap from impact assessment to implementation over the next three to six months. You might be wrestling with how to set the foundation for IFRS 17, build a business case, and develop a blueprint for your organisation that translates your vision, principles and requirements into an early-stage design. To succeed in these endeavours, we advocate taking a “soft design” approach to the implementation.
Soft design is a flexible way of working. It acknowledges that you must build in the ability to tweak your plan along the way. Your company can’t wait for the perfect solution before beginning to execute change. You’ll surely run out of time. So, soft design allows you to get started but identifies points when you can course correct as you proceed on your IFRS 17 journey.
Create an IFRS 17 road map
3 well-established management principles of soft design
- Think right to left
- Establish governance
- Assess what “good” looks like and be pragmatic
Think right to left
Don’t make changes to comply with IFRS 17 without first knowing your end goal. Articulate and document what that end goal looks like for the organisation and then work backward from systems and structure all the way to the platform needed for reporting. Otherwise, there will be a lot of last-minute scrambling to achieve goals.
Establish governance
Take your top brains from each relevant function within your company and put them in charge of the soft design to ensure the design effort does not become fragmented. For change to occur, people must be assigned to the task, empowered to make decisions and held accountable.
Assess what “good” looks like and be pragmatic
There is no one-size-fits-all approach. Assess what “good” looks like for your organisation, in the context of how you currently operate. Decide where you need to be best in class and where you should make incremental or tactical changes that will keep the organisation flexible going forward. Be pragmatic about the compromises you will need to make.
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