International Financial Reporting Standard 17 (IFRS 17) is the new insurance accounting standard that was published in 2017. The newly issued IFRS17 will now replace the current IFRS 4 and will go ahead on January 1st, 2022.
This is after 20 years in development, the International Accounting Standards Board (IASB) have issued a new insurance Accounting Standard, IFRS17 back in May 2017. This will be the first accounting standard on the insurance accounting.
It will provide a major change for insurance firms and will bring a huge difference and disruption to their business.
What is IFRS17?
IFRS17 will redefine the reporting requirement for insurance companies out there. It will allow further transparency and standardised reporting solution, that will impact how profit and expenses are recognised across the insurance industry.
IFRS17 should have been implemented for financial years from 2021 onwards, however last year the IASB decided to move it to 2022.
It is going beyond just offering reporting instruction; however, it requires companies to be able to compare them fairly against other insurers and make it easier for investors and customers to compare performance.
It will entail a well-defined change in reporting for insurers and companies should have already started to gain an understanding of the shift and be ready.
IFRS17 will deliver a level of communication and information to increase consistency, transparency, and match realisation of profits.
What is new?
IFRS17 will affect when you enter into new insurance contracts, you will have to calculate an estimate of all the cash flows that you expect to receive and payout of the necessary coverage period.
Individual insurance premiums must be recorded as well as any claims and administration that needs to be deducted. IFRS 17 then applies a risk adjustment which will represent any compensation for any risks taken from the policyholder.
The key changes will have an impact on the key measures that are currently used to calculate the performance of reinsurers, such as the premium volumes and the size of the balance sheet.
It will transform how business is processed and will offer an opportunity to upscale current systems and use new technologies.
The 3 models that IFRS 17 will make use of are:
- Building Block Approach (BBA)
- Premium Allocation Approach (PAA)
- Variable Fee Approach (VFA)
What does this mean for you?
The key tasks for insurers right now are to make the appropriate implementation decisions.
It will need the correct precision and will impact back office data, systems, and processes. The new standard will lead to an increase in data, so it is important to allocate the right experts.
It will be a very demanding time and will require a lot of work. The profit and loss statement will have to be adjusted. This is a positive shift and will provide more clarity and gain customers trust and loyalty.
With the whole purpose of replacing IFRS4 is simply to make the structure transparent and allow a comparison to different organisations simple and less hassle.
This new standard will bring data transparency and will reinforce decision-making across each department. With improved access to data in real-time will establish new opportunities for everything down to providing a better customer experience to profitable products.
The change will be drastic but when everything is understood going forward the future regulatory changes will be easier.
How can we help?
Struggling to understand how this may affect you? We are here to help you fully comprehend what this will mean to your working day. We are continually working with insurance companies such as LV Insurance, Legal & General, AXA. NFU mutual & A-plan so, we are well placed to help with this transformation.
It is our job to keep up to date with the latest news and development in the accounting and finance industry. Do not hesitate to get in touch.
Be ready, take advantage of this opportunity to prepare yourself. This will place you in a competitive advantage with this change and it will deliver many benefits. IFRS17 is set to change the whole reporting system for insurers with the outcome of a more consistent and clear approach across the whole industry.
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