Look to the Cloud for a Complete Solution to IFRS 17
May 15, 2018
There are many reasons to move your insurance risk management systems to the cloud. Most obviously, it offers potential to save both time and costs, by concentrating resources on key calculations in the main reporting periods. The need to comply with the new international accounting standard for insurance contracts (IFRS 17) adds one more motivation, as it demands extra, more granular calculations – and puts pressure on firms to speed up their close process.
The general benefits of the cloud go well beyond making simple savings on normal operations. Rapid disaster recovery comes as standard, and keeping your data systems in the cloud eliminates capital expenditure on infrastructure, so that you never pay for more than you use. Cloud vendors provide highly secure IT environments, effectively outsourcing the functions usually performed by internal IT, making cloud-based applications easy to upgrade and scale up or down, again with no capex.
The focus of the cloud providers on robust physical and logical controls has helped overcome traditional concerns in the insurance industry about the security of data in the cloud. Testament to firms’ change of heart has been their significant adoption of the public cloud. And their confidence has been well-rewarded, as costs are continuing to drop. This is thanks to both increased usage and massive investment by not only cloud providers but also companies like FIS, who can provide a “one-stop shop” for managing the applications and infrastructure 24/7.
With ever-increasing regulation and reporting requirements already costing them dearly, the increasing affordability of the public cloud is great news for insurers. But the advantages of a cloud-based operating model go beyond offsetting the costs of compliance – especially when it comes to tackling the core challenges of IFRS 17.
First, there’s the reporting aspect. The regular filing of reports already puts enormous pressure on finance and actuarial teams. At peak times, such as quarter and year ends, their systems may need at least three times as much compute power as in quieter periods. Traditionally, this drove companies to purchase the infrastructure required for peak use and then have it sit idle for the rest of the year.
IFRS 17’s impact is particularly strong here, as it forces interactions between finance and actuarial systems. This in turn necessitates the exchange of more data between the two domains, while placing additional time constraints on the actuarial risk process. And that’s where a managed cloud environment for your applications really comes into its own. Free from the constraints of fixed data centers, the cloud’s pay-as-you-go cost model allows you to scale hardware rapidly up and down to your changing requirements. At the same time, you can free up in-house IT resources to add value in other areas – transferring any related technology risks to your managed cloud service provider, with its combined knowledge of both the software application and the cloud.
But as well as lending itself to the usage patterns of risk reporting, a managed cloud service can help address a fundamental issue for most IFRS 17 implementations – how to connect and synchronize the two worlds of actuarial and finance. Under the standard, it’s vital to tightly integrate the actuarial platform and general ledger, and closely control the end-to-end IFRS 17 reporting process. Insurers need to ensure consistent, highly granular, mutually comprehensible data and align business processes between these historically disparate domains. As a result, there should be careful consideration of where these systems are located, and the volumes of data passing between the two.
Whether you are implementing a centralized or decentralized operating model for IFRS 17, today’s top managed cloud services can help you deploy a cloud topology and risk management platform that’s optimal for your choice of both calculation technique and general ledger. While ensuring high levels of governance and control, this approach aims to keep all of the data management, calculations and processes associated with IFRS 17 in the same secure, cost-effective public cloud – maintaining a clear audit trail and minimizing costly or time-consuming data transfer between systems.
So, while IFRS 17 is a standard that focuses mainly on calculations, it may also prove a catalyst for shifting your risk management reporting processes onto a managed cloud service. And that can put your whole business in a much stronger position to manage any future challenges.