What You Want to Know About Your IT Solution !!!

Introduction

IFRS 17 is creating an opportunity for insurance companies to modernize their legacy Information Technology Systems to embrace sophisticated and automated systems that can improve operations, also provide greater business insight.On the same time, IFRS 17 represents various changes for insurers and is due to significant affect at least (449) listed insurers globally with combined assets equal approximately $13.3 trillion in assets.

IFRS17 challenges lies in the significant changes for insurers’ accounting, reporting and information technology systems across their entire organizations, and the effort required bringing together the varied data required for compliance with IFRS 17 requirements.

Compliance with standard requirements will come at substantial cost, and will put pressure on their three core technology systems: accounting, data management, and actuarial modeling. Effective IFRS 17 compliance is especially in data-intensive process, and depends on firms having a strong core data management and reporting framework.

Whether an insurer is looking to develop a bespoke, customized solution or buy an off-the-shelf, certain key design and technology capabilities are to be considered including:

• A synchronized business and IT architecture approach between processes, data and technology.
• An alignment of process design and business outcomes through an orchestrated workflow management solution.
• Ensure alignment and ability for the solution to cope with current and future reporting requirements including, for example, regulatory forms or Supervisory returns.

IFRS 17 may be the tipping point that causes an organization to undergo a larger core systems modernization effort. The effort involved in becoming IFRS compliant is large and costly. Other regulations will undoubtedly follow.

Some of the IFRS 17 key requirements, including the forecasting technical process of the insurance?and reinsurance cash flows liabilities/assets streams along with the data preparation required to be in line with IFRS 17, also other data processing are not well taken into consideration from technical perspectives in some engines. Moreover, some engines are not well equipped with the common reinsurance structures based on which the IFRS 17 actuarial calculation is processed as far as reinsurance area is concerned.

Market IT Solutions : Selection Risks

First: Cloud /Web-Based Solution

Newer cloud-based technologies are coming onto the surface including analytics as a service type approaches and some engines are cloud /web-based solution not on premises of the insurance company, this will expose the insurance company to the following:

• High risk of data confidentiality.
• High reliance on internet connection speed.
• High vulnerability to cyber-attack by hackers; insurance companies should understand how cyber and other risks related to new technologies to be deployed, such as cloud computing will be managed.
• Data mobility which is the possibility of sharing data between cloud services and how to retrieve the data if one day the user makes a process of terminating cloud-computing services.
• Additional cost to be born and paid by the insurance company to the cloud services providing company.
• Lack of data integrity, which highlight the possibility of errors in processing due to high level of data human intervention, which effect the efficiency of the financial statement closing processes.

It is most likely not to be accepted by insurance regulators as the data and information of the local insurance company will be exposed to international cloud computing, unless there is security measures presented such as the related IT COSO framework, which is the most common one worldwide.

Second: Open Source Software

Some engines are described as an open source software whereby the users can manipulate the data, formulas, calculation methods, soon and so forth without any restrictions. This would lead to the following:

• High risk of data integrity.
• High risk of window dressing in technical reserve calculation and estimation.
• High risk of window dressing in accounting entries and the related impacts on the insurance company’s financial statements.
• Poor audit trail.
• Inefficient internal audit processes due to the above matters.
• Inefficient external audit processes due to the above matters.

Third: Fully Expandable Via Third Party Plug-ins

Some Engines are fully expandable via third party plug-ins. In other words, those engines are a multiple of sub-modules that is being developed by different IT software providers.

Having said the above, this suggests that in order for the insurance company to build the full process, they will need to incorporate third-party tools. These additional software requirements may not be well understood or capable of performing the full end-to-end process without these additional integrated software.

The more different software and providers involved in assimilating all IFRS17 sub-modules in one engine, the more risk there is likely to be with project management, support and governance involving many parties and the more complex the solution is likely to be for end users to be fully understood. This may leave clients with difficulties when technical issues arise in implementation as to responsibilities, particularly with software providers whom have no direct contractual obligation to the client for support.

Forth: Complex Programming Languages

IFRS 17 calculations performed using complex programming languages for the core actuarial calculations at the underlying contract level under BBA/VFA discounted fulfillment of cash flow along with Risk Adjustment calculations.

In light of the above, there are some programming languages that described as slow calculation performing languages, which requires well IT knowledge in order to speed up/optimize and increase code complexity.

It is also worth noting that the complex programming languages increase the audit cost such as functionality documentation, audit meta data, calculation drill down facilities, calculation illustrations, tutorials, user certification, separation of user acceptance testing from development, etc.In addition, the cost of maintenance and regression testing falls under the company discretion. Software providers normally have purpose-built tooling for regression testing unlike open source.

Fifth: IT Software Developed by Individuals

Some engines are developed by individuals through incorporating with small IT software providers. However, due to the complexity of the IFRS 17 and lack of the required knowledge, especially in financial/accounting key areas and other related IT matters,this would lead to the following:

• High risk of business continuity with the above IT software providers.
• High risk of poor functioning regarding this engine from all perspectives.
• ??High risk of IT support services after sales.

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