On January 1, 2021, the International Financial Reporting Standard (IFRS 17) comes into effect. The new standard represents a sea-change for insurers and is due to significantly affect at least 449 listed insurers with a combined $13.3 trillion in assets.
In simple terms, IFRS 17 will provide a set of unified principles for insurance accounting contracts that enables investors, analysts and others to compare global insurance companies’ financial statements like for like to increase transparency of policy profitability and reduce misvaluation.
The challenge, however, lies in the significant changes this will create for insurers’ accounting, reporting and data systems across their entire organisations, and the effort required to bring together the varied data points required for compliance.
IFRS 17 will bring with it an extensive swathe of new controls and reporting requirements for insurance with different levels of reporting required depending on the type of contract, industry, vertical and size of the portfolio and company. However, it also presents an opportunity for insurers to embrace the change to drive innovation and digital transformation.
In order to be compliant, insurers will need to ensure they can access the data required by this new standard. This is certainly a challenge, but there is also an opportunity for insurers’ IT departments to adopt new systems that will provide operational input and regulatory assistance for years to come.
The Right Tools for the Job
With a little under two years until the deadline for IFRS 17, many companies are carefully examining the technology they have and will need in order to meet the reporting parameters demanded of them by the new regulation.
The realisation for many businesses is that legacy IT systems that were deployed and configured to meet the specific needs of the previous regulation, IFRS 4, with little flexibility to adapt and change, are no longer fit to meet the new demands. With legacy systems storing data in separate silos and different formats across the organisation, pulling together a simple report would have to be an arduous manual process that requires many person-hours to complete.
However, with the rise of this new legislation, there are also new approaches to technology and data management that allow for the building of more robust systems that can meet these new requirements. Modern, agile systems can also provide operational benefits, broadening the reach of the system from just reporting to overall digital transformation.
The Technology Choice – Spend More Now or Later?
When faced with any new legislation, insurers have a choice:
- Repurpose an existing solution or rebuild one from scratch to do the new task.
- Extend multiple existing applications to include the different points you need to capture.
- Build a new system that can handle the current needs and any future or upcoming tweaks to the regulation.
It might be possible for any company that uses in-house or external resources to either retool or extend existing systems, but this is a stopgap method that ignores wider trends in legislation and technology. The fact is that regulation has been growing steadily more restrictive. This is a trend driven by technology, and as more and more data becomes available, regulators expect more of this data.
Unless you keep up with the latest technology developments, you will quickly find yourself struggling to keep pace with the latest reporting requirements. For this reason, companies must think beyond the stop-gap and identify resilient and flexible systems that can handle many different varieties of data.
Using Legislation to Drive Investment
One regular complaint of CTOs, CIOs and IT departments is how to secure funding for new systems when the current ones are seen to be operating fine. A main benefit of these new regulatory requirements is the impetus and incentive it creates for change across the organisation.
CTOs and CIOs can now use the fact that their systems have to be upgraded to drive board-level buy-in for digital transformation. Now that there is an additional reason for reform, the conversation changes from a ‘nice to have’ to a ‘mandatory,’ which can provide the necessary will for organization-wide reform.
Adapting to meet the needs of IFRS 17 is not an option, but companies have a choice between doing the bare minimum or embracing the change to drive innovation and cultural shifts. Inevitably, the companies that come out of this new regulation on top will be those that embrace the drive to change and adopt modern, flexible technologies that can see them through compliance and regulatory challenges, however significant. The great news is that this technology exists today.
With a multi-model database or data hub, like the MarkLogic Operational Data Hub for Insurance, insurers can integrate data from across the business, harmonise it and serve it in real time for accurate reporting and analysis. Not only does a data-hub solution allow companies to obtain a 360-degree view of all their data, but the technology also provides an optimal data framework and platform for all current and future regulatory requirements.