On November 14, 2018, the IASB proposed a one-year deferral of the new standard for Insurance Contracts, with the amendments applicable to both IFRS 17 and IFRS 9. This does not mean that companies can decelerate the process of implementation. Rather, immediate action is necessary. It might be useful to learn from the implementation of Solvency II, where some firms were fined more than a million euros for non-compliance and delayed implementation despite a deferral in implementation. In fact, a year after the deferred deadline, over 25 percent of the top 100 non-life insurers in the UK and Ireland published reports that required corrections. Recently this month, the IASB confirmed the mandatory effective dates of IFRS 17 which implies that entities would be required to apply IFRS 17 for annual periods beginning on or after 1 January 2022. Hence, the delay is not for convenience, but, is indeed, a necessity that demands an immediate action.
The insurance sector has just about managed to adapt and implement Solvency II, and the next big regulatory set of challenges is already around the corner. The impact of the rapid extension of regulatory requirements on insurance companies and banks appear to be similar to the capital requirements imposed by both Solvency II and Basel III regulations. With the intense lobbying efforts within the industry, it is clear that the industry players feel the goal of being fully compliant within the deadline might be too ambitious.
Although the IASB has communicated their rationale behind the IFRS 17 deferral, further clarifications are required. IASB’s track record to concede to requests for deferrals has been low in the past, which is reason enough to be sceptical. Their attitude is due to a potential loss of information or consistency in reporting. Besides, the refusal to adapt indicates that the insurers should not count on significant variations to be made to IFRS 17. The deferral of the deadline, therefore, only allows the insurers with more time to implement the required transformation. Nevertheless, the insurers still need to comply to the same strict standards, and lenience from the IASB should not be expected.
By extending the implementation phase, a more holistic approach can be achieved. Before the announcement of the deferral of the date, insurers were rushing in to comply with the bare minimum requirements. Now, with the announcement of the deadline extension, more efforts and resources can be put into building benefits into their solutions beyond regulatory compliance. Additional insights gained from data can ensure that proper data governance and management protocols are in place, thereby allowing for faster and more compliant regulatory changes.
The insurance sector now has enough time to adequately set-up a stable and integrated solution. In fact, they can now ensure additional efficiency and implement testing to significantly reduce the number of potential errors found by auditors after the implementation date. Moreover, instead of losing time on patching the system and correcting errors, the deferred deadline can allow time to add value after 2022. However, the primary purpose is IFRS 17 compliance. The implementation of SII and peer implementations at banks have shown that it is already difficult to comply with the ongoing regulatory requirements, despite delay in deadline implementation.
In short, the deferral of implementation for IFRS 17 and IFRS 9 standards does not mean insurers get a more relaxing and comfortable time to comply. If we are to learn lessons from Solvency II, it is obvious that the implementation of these regulatory requirements is costly and can lead to significant fines if not completed on time. Therefore, it is crucial for the insurers and related parties to take a prompt action towards IFRS 17 compliance, to possibly turn a costly perspective into a potential profitable return. It might seem early, but the time to act is now!