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IFRS 17: A New Era for Insurance Companies
By Stavros Violaris, Senior Manager, Financial Accounting Advisory Services, EY Cyprus
After more than 20 years of deliberations, it is expected that the application of the new insurance standard IFRS 17, in 2022, will lead to several important challenges for insurance and reinsurance companies. The requirements of the new standard are significantly different from the existing ones, with a direct impact on the following: – A change in the way profitability is reported – An increase in the complexity of the estimation methods and assumptions used and – An increase in the volume of data required As expected by the market, financial reporting changes are only one part of the challenges posed by the new standard. In a live poll conducted during the recent European Insurance Conference, 56% of participants reported that the biggest challenge will be that of changing their existing processes and systems. The participants expressing their opinions consisted of a wide range of financial sector professionals from insurance groups based in Europe. The magnitude of the challenges was also revealed by the fact that more than 40% of the conference delegates believed that their company will spend more than $20 million on implementing the standard. Another 23% estimated that the total amount will be between $5 million and $20 million. It is generally accepted that multinational companies, and especially those that have more complex long-term business activities, will have higher implementation costs. Given that compliance with IFRS 17 will be a costly challenge, many insurance companies believe that this is an opportunity for a wider restructuring of their business to achieve additional benefits, by implementing more efficient data systems and producing more upto-date information for decision-making or even an opportunity for a strategic re-positioning of their finances. No specific trend has been established in Cyprus yet, as most insurance companies are still at the primary stages of application of the new standard. It is very clear, however, that IFRS 17 is now high on their agenda. At EY, given the impact of IFRS 17 and the complexity of its integration, we propose six direct actions that can be a starting point for the integration of the new standard: 1. Informative and training sessions for executives regarding the new requirements and their impact 2. Designing the basic methodology, decision making and determining the assumptions that will lead to implementation 3. Analysis of the financial, operational and system impacts 4. Preparation of a budget for costs and required resources 5. Impact assessment on other ongoing or scheduled projects for the next three years 6. Strategic impact assessment and the respective effect on products.
The three years that remain until the full implementation of IFRS 17 may seem like a long time but the impact is already being felt by Insurers. For those that have seen the detailed technical requirements, it is clear that IFRS 17 will have an impact not only on insurance companies’ financial reports but on all aspects of the organisation. There are many challenges and planning will thus be the key in order for companies to cope with the technical and practical changes that IFRS 17 will bring. Cypriot insurance companies will need to dedicate time and resources for the integration of the new Standard. During this process, the need to identify suitably qualified individuals will most likely be of great significance in order to successfully implement a standard that will bring insurance companies into a new era.
