|The implementation of IFRS 17 remains a challenge to many insurers due to its complexity |
International Financial Reporting Standard 17 (IFRS 17) is the globally standardised accounting model for insurance contracts. For insurance companies reporting under IFRS, IFRS 17 becomes effective in January 2023. While this reporting standard promises to improve the transparency and comparability of information, its adoption will require significant planning due to its complexity.
70 per cent of respondents express concerns about the practical challenges when it comes to their IFRS 17 implementation programme, even though more than half of the survey respondents have reached the detailed design stage.
The implementation of IFRS 17 remains a challenge to many insurers. The survey points out the expected duration of IFRS 17 implementation programmes has increased over the past year, from 3.5 to 3.8 years, especially for life insurers.
|The survey findings highlight that despite an extension of the standard's effective date to 2023, IFRS 17 implementation has proved to be a long and challenging journey for many insurers. |
The longer expected timeline makes the overall cost more difficult to estimate and control. About 50 per cent of insurers who have looked into their actual implementation cost are concerned that it will exceed their initial budget. This is not surprising given the survey respondents continue to experience unforeseen roadblocks and delays in their IFRS 17 implementation programmes.
“In Vietnam, the voluntary adoption of IFRS will start next year which is not long until the compulsory deadline of 2025. Starting early is key, particularly for IFRS 17 as this standard demands greater detail in financial analysis and goes beyond an organisation’s finance functions,” said Tran Thi Thanh Truc, assurance partner of PwC Vietnam.
The survey findings highlight that despite an extension of the standard's effective date of 2023, IFRS 17 implementation has proved to be a long and challenging journey for many insurers. For companies who have not previously reported on IFRS basis, the difference in reporting regime may result in even more time and effort, for example, in performing comprehensive gap assessments of existing data, models, and processes, understanding the financial impacts, and explaining such impacts to the relevant stakeholders, such as the Board of Directors.
“Detailed planning and careful project management will help ensure that this reporting standard is implemented successfully by the effective date,” Truc noted.
According to the survey, the top three IFRS 17 implementation challenges are skill/talent (21 per cent), technology (19 per cent), and time (17 per cent) constraints.
This is the second year in which skill/talent constraint is seen as the top challenge for insurers. In particular, accounting, actuarial, and IT professionals with IFRS 17 experience will be in high demand. It is advisable that insurance companies begin to accelerate the upskilling of their employees and obtain additional support where needed to remain on course for successful and timely IFRS 17 implementation.
What is certain is that IFRS 17 is a significant challenge to the entire organisation and not just for the actuarial and finance departments. The extension of this standard to 2023 offers insurers more time to complete their programmes.
However, insurance companies in Vietnam that have not started with detailed design of their IFRS 17 solutions should take note of the time and effort required to design and implement the standard.
This second edition of “IFRS 17 Health Check Survey 2021: Asia Pacific” was published in July 2021. The first edition was released in May 2020. The survey provides insights into IFRS 17 implementation approaches, progress made, and challenges faced.
In the second edition, survey responses came from 37 insurance executives across eight territories, including Singapore, Australia, Hong Kong, Japan, Malaysia, New Zealand, Philippines, and Thailand, in the Asia-Pacific region. The responses, between May 10 to 31, 2021, were from a range of small, medium, and large life insurers (30 per cent), non-life insurers (49 per cent), composites (19 per cent), and reinsurers (3 per cent).