While the spotlight on IFRS 17 compliance tends to shine on analysis and reporting, affected insurance firms must ensure the right ‘raw materials’ go into the processor. Data capture and integration are where the major challenges lie, says Expleo’s Hariprasad Rajagopolan, Associate Functional Consultant – Insurance and Muthuraja Sivanandam, Project Manager – Data and Analytics.
IFRS 17, the new International Financial Reporting Standard issued by the International Accounting Standards Board (IASB) in 2017, insists that all affected firms worldwide report their balance sheet to investors using the same new set of metrics. With a deadline of January 1st 2023, the majority of affected businesses will remain non-compliant if they don’t take action, risking their right to trade and incurring severe reputational damage as a result.
There are several levels of complexity to IFRS 17, which must be navigated before achieving compliance. First of all, the regulation is exhaustive, but there is no one-size-fits-all guideline for how firms must pull data from one area to another or which framework they use for reporting. Do you use an off-the-shelf or custom-made solution? Digital transformation is another watch-out. Most insurance firms are already undergoing some sort of digital transformation. That presents a moving target for IFRS 17 adaptations. Was IFRS 17 even considered when the digital transformation began? Is your data synchronisation plan running at the same trajectory?
Whatever the model or solution that firms choose, data quality is the common factor. Boldly speaking, there is no IFRS 17 without first getting the data piece right. In simple terms, IFRS 17 can be boiled down into four stages:
- Data capture
- Data integration
- Data analysis
- Data reporting
The annual and quarterly reports that come out ‘the sausage machine’ will only be as good quality (and therefore compliant) as the ‘raw materials’ that go in.
Harmonising data sources
The problem for firms is that the various raw material databases – such as market feeds, FX rates and pricing, as well as other data from underwriting, claims and actuarial – will likely be stored in many different, incompatible formats. That’s just the nature of large organisations, especially those that have grown through acquisition in recent years. For example, IFRS 17 requires aggregation at portfolio level of similar contracts or similar risks. If an insurance company underwrites similar portfolios in two different systems, can the data be aggregated easily? Apart from functional complexity that may arise, if these systems have different technology architecture, any new data extract from these source systems adds to the data quality risk.
All of this data needs to be cleaned and homogenised, before the IFRS 17 solution can do its job: generating the risk-based portfolios, expected cash flows, risk adjustments, finance processing, data deposits etc that are needed to populate the general ledger and finance reporting systems. The projections and forward planning that are shared with customers, shareholders and the regulator will depend directly on how efficiently data is processed at the start.
Addressing the data challenges presents two key questions to FCOs and CTOs. How well does your firm understand the data in its system? Do you currently have the bandwidth and technical resources to meet this urgent challenge?
The good news is that the data capture and integration challenges for IFRS 17 are surmountable with the right technological solutions. At Expleo, we can help to certify that data is fit for purpose and well managed, allowing more accurate analysis to reduce risk and aid decision making. Alongside the technology know-how, we have in-house understanding of insurance business and finance. Our quality assurance experts are experienced in client-side assurance, providing real-time guidance around potential setbacks and working with your teams to find alternative solutions.
The clock is ticking for IFRS 17, as firms will need to test their systems extensively before go-live, leaving around 12 months’ breathing space from now. Of course, overcoming divergences in data flow will help business performance beyond the need for IFRS 17 compliance, providing other transformational benefits from greater clarity and synchronisation. Now is the time to manage your raw materials.