The introduction of the new International Financial Reporting Standard (IFRS) 17 – including local adaptations such as PSAK 74 in Indonesia and CAS 25 in China – is nothing short of a whirlwind of transformation for insurers, which has reportedly cost the insurance industry nearly US$20bn to implement.
The adoption of this new standard marks the most significant overhaul of insurance accounting standards in the past two decades. It reshapes how insurers report their financial results and manage their businesses, demanding greater transparency and consistency.
While initially focused on navigating compliance challenges, IFRS 17 presents insurers with opportunities to enhance their financial management practices, leverage modern technologies, and gain strategic advantages.
With parts of the world still to embrace these new standards at scale, we have a chance to examine the results so far and see what we can learn for ongoing implementation and future initiatives – as well as how technology can play a crucial role in leveraging the full value of this change. This article explores the initial impacts and challenges of IFRS 17 implementation worldwide and delves into how insurers can move beyond compliance to unlock broader business benefits.
Michael Hafner
Product Manager for Insurance Finance Solutions at SAP FioneerUnderstanding the global Impact of IFRS 17 implementation
Since January 1, 2023, over 140 countries have adopted IFRS 17, which has led to substantial changes in financial reporting across the insurance industry.
The standard requires insurers to provide more detailed and regular updates on their contract values, including current estimates of cash flows, discount rates, and adjustments for non-financial risk. These requirements enhance the comparability and usefulness of financial statements but also introduce complexities.
The impact of IFRS 17 varies across regions, reflecting diverse economic conditions and regulatory environments.
In Europe, many insurers have reported increases in equity due to the reflection of rising interest rates in financial measurements. In the Americas, some anticipate a decline in core earnings by 5% to 10% owing to deferred profit recognition under the Contractual Service Margin (CSM). UK companies expect reductions in operating profit by approximately 15% annually, attributed to changes in profit recognition timing for long-term contracts.
Meanwhile, insurers in the Asia-Pacific region have observed significant net profit increases with expectations of reduced earnings volatility, although adoption varies due to local regulatory considerations
In some cases, countries are tailoring their approach to IFRS 17 to align with local market needs. For example, India is working towards replacing its existing insurance accounting framework with a new standard modelled on IFRS 17, known as Ind AS 117. Indian insurers are proactively embracing Ind AS 117 to position themselves for future growth, with some of them (such as GIC Re) partnering with technology providers to implement advanced financial systems to streamline compliance and reporting processes.
These regional nuances underscore the complex financial implications of IFRS 17 and the strategic adjustments insurers must navigate.
Navigating challenges in implementing IFRS 17
While IFRS 17 promises improved transparency and comparability, its implementation poses several challenges for insurers:
- Data management and processes: The requirement for more granular and frequent data updates necessitates robust data management systems. Insurers must reassess their data collection, storage, and analysis processes to meet the new standard’s demands.
- Technology integration: Many insurers operate with a mix of legacy systems and specialised solutions. Aligning these disparate technologies to comply with IFRS 17 can be complex and may involve significant investment in new systems or upgrades.
- Cross-functional collaboration: Effective implementation requires close cooperation between actuarial, finance, and IT departments. Historically, these functions may have mainly operated independently, so fostering collaboration is essential but can be challenging.
- Beyond an accounting exercise: Viewing IFRS 17 implementation solely as an accounting task underestimates its organisational impact, which extends to operational processes, product design, and strategic planning.
As Michael Hafner, an expert in insurance finance solutions at SAP Fioneer, observes, the challenges extend beyond the implementation project itself. “One thing we have observed, having worked with many insurers around the globe, is that ensuring efficient operations post-implementation can prove to be a challenge,” says Hafner. “It requires well-established data control—such as data quality monitoring—and financial control, including reconciliation, alignment with audit, and adjustment processes.”
These ongoing operational challenges highlight the necessity for insurers to establish robust systems and controls that support sustainable efficiency and accuracy. Addressing these issues is crucial for compliance and unlocking the strategic advantages that IFRS 17 can offer.
Lastly, flexibility in the “engine room” will remain important after implementation. As IFRS 17 is new to the industry, decision-makers and capital markets insurers want to stay flexible in their IT and operations to adapt and adjust after first ‘lessons learned’ and feedback from analysts.
Leveraging IFRS 17 for strategic advantage
Despite its challenges, IFRS 17 offers insurers the opportunity to enhance their business operations and strategic decision-making.
- Enhanced Portfolio Analysis:
The standard’s requirement to identify and report on contracts that may be loss-making from inception (“onerous” contracts) provides insurers with deeper insights into their product portfolios. This granularity enables more informed decisions about product design, pricing strategies, and risk management.
- Improved Financial Steering, Reporting and Transparency:
By adopting IFRS 17, insurers can provide more transparent and comparable financial statements. Additionally, the standard facilitates improved financial steering by enabling better forecasting and proactive management of future financial outcomes, not just retrospective analysis. This allows insurers to anticipate trends, adjust strategies, and make informed decisions to optimise performance.
This forward-looking approach and transparency benefits stakeholders, including investors and analysts, who can better assess an insurer’s financial health and performance relative to peers.
- Technology-driven Efficiency:
The strategic benefits of IFRS 17 are closely linked to the effective use of technology. Automating complex calculations and reporting processes reduces errors and frees up resources for value-added activities.
Insurers who invest in modern, integrated financial systems position themselves to access detailed insights quickly, respond agilely to market changes, and implement strategic initiatives at scale. By implementing cloud-based platforms and advanced analytics tools, insurers can automate reporting processes, gain real-time insights, and improve decision-making capabilities.
For instance, major global (re)insurers (Munich Re, for example) have partnered with technology providers to implement advanced financial subledger systems that not only ensure compliance but also enhance data integration and reporting capabilities. These systems support unified data structures across business units, improving consistency and enabling more sophisticated financial analysis.
Embracing IFRS 17 as a catalyst for transformation
IFRS 17 is more than a regulatory requirement. It has sparked a rethinking of insurance data processes. However, it will be up to firms to decide how far they want to go. Maximising the opportunities presented by IFRS 17 requires a proactive and strategic mindset.
Insurers should view compliance as a foundation to build competitive advantages rather than a final goal. By approaching IFRS 17 with a forward-thinking mindset and leveraging the potential of new technologies, insurers can transform regulatory requirements into opportunities that put them in a more resilient position in an evolving global market.
The journey may be complex, but the potential rewards are significant for insurers who look beyond these hurdles to explore strategic opportunities.