Implementing IFRS 17 – In a perfect world, we’d have all done this by now

Response to my last post surprised us – apparently some insurers aren’t fed up of being told what they should have done by now and want to hear how to get back on track for delivery. So, below is shortish summary of where we believe where healthy delivery projects could be. Full detail has been posted on our website here

1.      Made key decisions

Delivering a project is easier when everyone knows what they are working towards. This is impossible at the beginning of a project because there will be more questions than answers.

The key task of a project team during early stages of a project is to determine either the big decisions or create mechanisms that answer questions that enable those decisions.

  2.     Shaped delivery strategy and set up formal project

Mechanisms need to be in place to anticipate and manage the contradictions, challenges and obstacles that will be found along the way. Key to this is to give the project enough structure to ensure delivery takes place on time, but no so structured as to become bogged down in bureaucracy. For more information on planning and structuring your IFRS 17 project for delivery design click here.

 3.      Completed gap analysis of current and to-be situations

The best way to get to somewhere new is to map out the quickest and easiest path to get there. The same is true of projects.

 4.      TOM design 60% complete

Delivering a new TOM is one of two core objectives of the project. Everything ese is a detail within it.

Designing a TOM is an act of starting with a blurry or high-level picture, then over time fining it into sharp focus revealing more detail.

This can be commenced without understanding the detail of the standard. Over time as the standard becomes better understood and it is interpreted and reinterpreted, then the model becomes more detailed until it is at a point where is is well enough understood to be made operational (coding and automation too). More information on TOM delivery can be seen here. 

5.      Gone through several cycles of interpreting and updating the standard

The standard and its implications will go through many cycles of re-interpretation until its technical and mathematical implications are understood. This will be a continual process. We cannot wait, we do not need to wait for this to be complete prior to developing the operating model. Indeed, the operating model development will help inform where work is required on interpreting the standard

 6.     Completed dividing up products into portfolios and identifying cohorts

 These are two of the key technical activities of the early stages of changing an insurer’s approach to recording its P&L. Current policies will need be assessed type by type, grouped and measured. The work will inform what technical changes are required to policy administration systems and also identify policies which the insurer wants to avoid accounting under IFRS 17 terms (by drawing down the profit from them prior to 2021).

 7.     Completed accounting solution design

The Accounting Solution needs to address eight core interdependencies:

? Policy for FRS 4 to 17                         ? Strategies

? Organization                                         ? Data

? Actuarial & accounting systems          ? Guidelines

? Resources and skills                             ? Processes

The purpose of this solution method is to enable and ensure that business is fit for purpose, ensures the wellbeing of the organisation and is agile enough to meet its future demands.

 8.     About to complete design of actuarial model

Actuarial modelling approach is a key challenge of IFRS 17. Assumptions and modelling approach will have to change (although not too much for companies who already do both Solvency II and US GAAP). In addition, the scale of the calculations will multiply, meaning contemporary methods and systems will become redundant (too slow). This means that modelling teams should consider alternative modelling and interfacing platforms (for example looking at modelling software that isn’t dependent on model libraries) Finally, new data from policy administration systems will be required.

  9.     Agreed how to manage costs to 2021

We estimated that the cost of a devolved delivery of IFRS 17 would be approximately US$8M for work within a head office and approximately the same within each of its business units. So and insurer who operates in 10 territories would need to budget US$88M. If a centralised approach was preferred, then the cost would be lower, but require more organised and structured work up front.

Last year we asked stakeholders what they thought the delivery costs would be. Just over 40% of people who work at insurers believed implementation, based on our scenario would cost less than US$50m, just under 40% believed it would cost between US50m and US$100m. About 20% of staff believed that it would cost over $100m.

About 60% of staff at delivery firms believe that the cost would be between US$50m and US$100m. Two thirds of staff at regulators believe that delivering IFRS 17 will cost insurers less than US$50m.

 From a management perspective, good clarity of strategic objectives will help focus the whole initiative and prevent nugatory spend. 

 10.  Started early communication of change of direction to investors

IFRS 16 will have an impact on the accounts of businesses across all sectors from 2019. It may have an impact on the world economy during 2020 as investors come to terms with revised profitability forecasts of their investments.