After talking to countless clients around the world about IFRS 17, I’ve noticed four distinct styles of preparedness for implementing the new accounting standard by the start of 2021.
As the finer points of IFRS 17 are finalized, each of these styles will face its own challenges.
1. The Trailblazer
Trailblazing insurers have really gone for it and started implementing IFRS 17 before it’s final. For firms in certain regions, this drive to get ahead of the pack is born partly of necessity. In South Korea, for example, IFRS 17 will come into force on the very same day (Jan. 1, 2021) as the New risk-based capital regime, the local equivalent of Solvency II. That is expected to put huge stress on the region’s insurers and pool of actuarial talent. This double whammy of regulation means there’s been no time to waste – making South Korean insurers among the first in the world to investigate the impacts of IFRS 17.
2. The Pragmatic Planner
These insurers have also been busy working out how IFRS 17 will affect their lines of business – they’ve been carrying out impact assessments and modeling potential changes to the balance sheet. Practical to a fault, “pragmatic planners” have looked at the regulation’s impact on their systems and requirements for hardware, data and people. Many of these firms are now becoming particularly focused on the nuances of IFRS 17 and its many areas that are open to interpretation, such as methodologies for calculating risk adjustments and variable fees, or more practical challenges like disclosure, transition and the ongoing measurement of new contracts on recognition.
3. The Wait-and-See-er
These insurers are in a holding pattern and won’t do much in the way of analysis or securing budgets until the ink is dry on IFRS 17’s final draft. On the upside, this will save them the costs of repeating impact assessments in line with any last regulatory tweaks. On the downside, we don’t expect the deadline for compliance will change – so they’ll need to be quick implementing IFRS 17, and may not be well prepared for its impact.
4. The Ostrich
To be honest, I haven’t met any insurers that qualify for this “head-in-the-sand” category. But with IFRS 17 set to affect more than 100 countries, the chances are that some firms out there are largely ignoring the standard or hoping it will be delayed. Other “ostriches” may simply have greater immediate priorities in 2017.
For all of these categories, the finalization of IFRS 17 will give insurers plenty more to think about, whether adjusting their plans or taking their first steps towards implementation. Most firms will need to seek further guidance from consultants, auditors and the IASB’s own support services as they interpret some of the more ambiguous principles. But with the final standard being published, the countdown to 2021 begins in earnest.
So, how ready are you for compliance?