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Delivering IFRS 17 Scale, Challenge and Opportunity

Revised November 2017

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IFRS 17 will have a huge impact

on how investors view insurers

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Contents

Executive summary .......................................................................................................................................................... 4

Introduction ...................................................................................................................................................................... 6

1. Planning for IFRS 17 .................................................................................................................................................... 8

Seven basic questions ................................................................................................................................................. 8

1. Why are we doing this? ....................................................................................................................................... 9

2. What are we going to do? ................................................................................................................................. 11

3. Who will be affected? ........................................................................................................................................ 12

4. Where will it happen? ........................................................................................................................................ 14

5. When will it happen? ......................................................................................................................................... 15

6. How are we going to do it? ................................................................................................................................ 16

7. How much will it cost? ....................................................................................................................................... 18

2. Delivering IFRS 17 ..................................................................................................................................................... 19

Major considerations .................................................................................................................................................. 19

Delivery options .......................................................................................................................................................... 20

Establishing a programme to deliver IFRS 17 ............................................................................................................ 25

Delivery schedule and road map ................................................................................................................................ 27

Anticipated Issues, risks and opportunities in delivering IFRS 17 .............................................................................. 29

Next steps for insurers ............................................................................................................................................... 32

3. Innovation is delivering IFRS 17 ................................................................................................................................. 33

Innovation IFRS 17 capabilities .................................................................................................................................. 33

Innovators .................................................................................................................................................................. 33

Innovation’s Insurance clients .................................................................................................................................... 33

Innovation’s approach delivering change in businesses............................................................................................. 34

The shape of projects ................................................................................................................................................. 35

© 2014, 2015, 2016, 2017. Written by Stephen Porteous at Innovation.

Version 5.0 – 15 November 2017 – updated with timelines on a 2018 start.

This publication will be periodically revised and updated. For the latest version please see link: www.innovation.co.uk

This publication may not be stored, copied, forwarded or printed without permission. Please contact us if you would wish to do so.

If you seek permission, we are likely to give it.

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EXECUTIVE SUMMARYIFRS 17 will be the biggest challenge the insurance industry has faced in a generation.

The finance operating model of every insurer working within an IFRS jurisdiction will have

to be re-engineered. IFRS 17 will be effective 1 January 2021, with insurers required to

produce comparative accounts for 2020.

IFRS 17 will bring unprecedented challenges

to insurers in how they maintain confidence

of investors, how they deliver the required

change, how they manage their businesses

and how they sustain an affordable back

office.

From our IFRS 17 delivery work for

insurance clients and research conducted

across the industry, we see key areas that

will be impacted. We have identified these in

the figure 3 on page 11, these indicate the

areas of the process that will change as a

result of IFRS 17.

Depending on insurers’ approach and

motivation, it may be possible to work

towards minimizing the impact of the huge

increase in operational work and cost.

Essential steps such as alignment of internal

accounting policies, construction of better

operating models or increasing levels of

automation may need to be taken to reduce

risk and limit impact.

To ensure successful delivery and

implementation, incremental resources will

be required to deliver the change in a

structured and coordinated manner.

Available resources will be limited, so smart

new ways of delivering change will need to

be adopted. In our experience of delivering

change, the later the project is started, the

less organized it will be and the more

expensive it will become as insurers

compete for scarce resources.

Delivery dates are fixed with 43 months to

deliver the change. Quality is non-

negotiable, which leaves as the only

variables: investment cost versus operational

cost.

Ultimately IFRS 17 marks an opportunity for

insurers to work smarter, but first companies

need to actively embrace and deliver the

change. As a partner for change, we are

working to support insurance businesses

successfully deliver change through the

IFRS 17 period.

We at Innovation recommend that insurers

actively engage with a range of suppliers to

understand their best options for successful

delivery.

This is a condensed summary of the

changes facing insurers. For more

information, contact

stephen.porteous@innovation.co.uk

A summary of the next steps for every insurer is illustrated on page 32. For more

information see: www.innovation.co.uk

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Figure 1. Workflow of the decision-making process to enable IFRS 17 delivery

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INTRODUCTION

A change is coming that will transform how investors view insurance companies and will

revolutionise how insurers manage themselves.

GLOBAL STANDARD

In May 2017, IASB released its long-anticipated

replacement for IFRS 4. It will align the annual

disclosures of insurers across all IFRS jurisdictions.

IFRS 17 will become effective on 1 January 2021,

giving the 449 IFRS insurers 36 months to design, plan

and deliver the required changes. From January 2018.

Investors will see the fruits of the change in the first

quarter of 2022 when the first round of IFRS 17-based

annual results are released. It will be at this point that

the purpose of the standard will come to life; for the

first time, insurers will become truly comparable across

national boundaries.

No longer will insurers’ results be distorted by local

reporting regulations. This will allow investors to make

more informed portfolio choices.

In a recent speech, Hans Hoogervorst, Chairman,

International Accounting Standards Board (IASB)

illustrated the current difference between how one

insurance entity is measured in two different countries

in table 1 below.

CHANGE THAT IMPACTS THE WHOLE BUSINESS

Our research work with insurers has demonstrated that

focus and attention has so far resided within their

actuarial and accounting teams.

However, the standard will affect a broad range of

stakeholders across every insurer. These will include

investor relations, legal, human resources, IT,

procurement, compliance and audit.

Long term effects will even be seen in product, risk,

investment, reinsurance, capital management and risk-

based capital teams.

Despite the magnitude of the impact of IFRS 17, only

10% of insurers’ audit committees have approved

plans, with a further 30% of audit committees having

seen, but not accepted plans, this leaves 60% of audit

committees yet to see an IFRS 17 plan.

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FOCUS ON PLANNING FOR CHANGE

There is a good body of material available on what the standard will mean, but little has

been communicated in the public domain about how to deliver IFRS 17. We aim to fill

that gap by providing this paper that will allow leaders of insurers and delivery firms to

understand the scale of the challenge and what the next steps are in designing and

planning the change. Our purpose here is to communicate and inform insurers of the

changes they will face:

• We ask the strategic questions that will shape

their approach

• We illustrate the likely impact on business

management and back-office operating models

• We outline the actions required to deliver those

changes

• We identify some of the strategic issues, risks and

opportunities faced by insurers

• We pay special attention to the impact the

standard will have on investor perception of the

outcome of IFRS 17 implementation

Starting with the London Stock Exchange’s Big Bang,

Innovation Business Vision has been a firm that for 30

years focusses on strategy, planning and managing

the delivery complex business change.

We have been planning and managing the delivery of

IFRS 17 work in the Europe and Asia since 2014. We

can support insurers and delivery firms plan and

manage the delivery of IFRS 17.

The new standard will change the

balance of accounting activities and

put actuarial work at the centre of

corporate accounting

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1. PLANNING FOR IFRS 17

This section is about asking the questions that will expose the scale, challenges and

opportunities in each business that will enable them to effectively plan for a successful

delivery.

SEVEN BASIC QUESTIONS

Initiating any large business change exercise is best

done by asking questions about the circumstances of

the change. These questions and their answers will

inform the optimum strategic direction and method for

change. In their most basic form there are typically

seven questions, here we ask those questions and

categorise those question into the major components

of a business; organisation, business processes and

supporting systems.

Figure 2. How asking seven basic questions aids planning and delivery of change.

Undertaking such an exercise is akin to a due diligence

and doesn’t have to be a mass mobilisation. It can be

undertaken by a small group of people well connected

in the business and facilitated by others who

understand how to shape and plan complex business

change exercises.

The earlier these questions are exposed, the sooner

the constraints, issues, risks, opportunities and

dependencies will be understood. It is possible to build

a strategy that enables effective planning and ensures

that strategic decisions are made before they become

critical, cause delays or increase cost. The questions

and their components will have to be faced at some

point. If these are only explored after the work has

commenced, then the quality of the delivery will be

diminished and costs will inevitably rise. Here we

explore those seven basic question:

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1. WHY ARE WE DOING THIS?

This question has an obvious and immediate answer -

because we have to. Even so, to believe that it is the

complete answer would be to miss the opportunity to

understand what the drivers of change are for IFRS 17.

Another view is that implementing IFRS 17 really

matters to a number of stakeholders including

investors and regulators (see table 2).

The standard has been driven by the IASB and long in

development. This is because stakeholders around the

world believe that fundamental changes are required in

the way that insurers measure themselves. In

exploring this question, the business can begin to

understand and organise what it can do to allay

potential stakeholder concern. By understanding

stakeholder concern, insurers can identify elements of

their business that can be improved to lever

commercial advantage compared to other insurers.

For example, investor perception; If insurers ‘choose’

to change early, then there will be a corresponding

investor impact over multiple years. So a valid answer

to the why? question could be ‘to understand the risk

and minimise the negative impact of investor

perception’. Other answers to an insurer’s why? will

include decisions about the drivers of change:

• What we need to do to improve investor

confidence

• Where the insurer intends to operate by 2021

• Whether to undertake back-office house-keeping

• Whether to align processes, standards and

methods across the business

• Whether to change the business’s risk

management and investment approaches

• Whether there are any current internal practices

that need to be modified prior to the effective date.

Addressing these fundamental points early and

correctly can lay the building blocks of strategic

advantage.

IFRS 17 will be the biggest accounting

change for insurers in a generation

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Table 2. Drivers for, and in delivering IFRS 17

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2. WHAT ARE WE GOING TO DO?

Insurance businesses will face significant changes to the way they operate their finance

and actuarial operations.

Figure 3 below illustrates a high level operational flow

for an insurance close from entity to parent. The boxes

coloured green shows the areas of the business

process which will change as a result of IFRS 17.

Figure 3. A generic view of an insurance company’s accounting and valuation process.

Policy administration data will largely remain

unchanged as long as it supplies the right quality of

information to the models and ledgers.

Policy categorisation will change into one of the three

measurement models. There will also be a change to

loss recognition for policies which may require systems

to be adjusted. At this point the volume and complexity

of information will significantly increase compared to

today.

General ledgers and actuarial models will change, as

will profit emergence patterns becoming a lifetime

measure. Current assumptions will change and new

assumptions will be added. A number of insurers have

built prototypes of these models and some suppliers to

insurers have generated commercial models that can

be added to existing finance and actuarial systems.

The disclosures and statements will change too. There

will be new reporting lines and a great deal more

transparency than there is now.

Depending on the insurer’s approach and motivation, it

may be possible to work towards reducing the number

of parallel ledgers it uses. It can do this by aligning its

accounting policies between local entities and parent

company. This will reduce the complexity and

operational cost of the close work.

All of this adds up to a substantial change that will

mean that ultimately all of the insurer’s accounting and

valuation processes will change. Awareness of the

need for wholesale change will enable every insurer to

adopt a more strategic approach to its change

management.

Areas of the operating

model that will be impacted

by IFRS 17

parent co.

disclosures

Parent co.

management

information

parent co.

disclosures

Parent co.

management

information

parent co.

consolidation of

accounts

parent co.

equity model

parent co.

revenue model

parent co.

consolidation

of accounts

parent co.

equity model

parent co.

revenue model

entity

disclosures

entity

management

information

entity revenue

entity equity

parent co. last

period’s data

parent co.

investment data

parent co.

operating

expenses

entity

disclosures

entity

management

information

entity revenue

entity equity

parent co. last

period’s data

parent co.

investment

data

parent co.

operating

expenses

entity

investment data

entity operating

expenses

entity policy

data

entity

investment

data

entity

operating

expenses

entity policy

data

refinement

models

entity ledgers

last period’s

data

refinement

models

entity ledgers

last period’s

data

entity

consolidation of

accounts

entity revenue

model

entity

consolidation

of accounts

entity revenue

model

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3. WHO WILL BE AFFECTED?

The five major stakeholders in an insurance business are investors, customers, workers,

regulators and suppliers (see table 3)

Investors are likely to change their perception of

insurers in a way that shadows the impact that the

Basel accords and MIFID has had on banks. Insurers

do not necessarily compete with other insurers for

investor capital. They often compete against other

geographically or demographically placed competitors

in other industries. These competitor companies will

not face a similar change in financial reporting and it is

possible they will be seen as more stable investments

in the 2018 to 2022 period. It is therefore imperative

that insurers provide to investors the kind of

information that can reassure investors, preventing

shocks when the revised revenue, income and capital

positions are released.

Innovation undertook a study on the

impact of IFRS 17 and business

readiness for it, focussing on Investors,

Insurers, Regulators and suppliers to

insurers.

To see the results go to:

www.innovation.co.uk

Existing customers who are policyholders are unlikely

to see a major impact in the short-term because of a

likely lag in change of product portfolios. However, it is

reasonable to expect that product offerings will change

in the longer-term, as the impact of IFRS 17 reveals a

change in the loss and risk profiles of insurers. It is

possible that incoming policyholders are offered more

conservative products that are less attractive

compared to non-insurance products. Bancassurance

partners, brokers and agents are also customers, they

will be required to adapt their offerings rapidly once the

insurer revises its products. Bonus schemes are likely

to change too.

Regulators will have a role to play, they are in regular

dialogue with senior staff at insurers and will be keenly

interested in the revised capital position of businesses.

The initial results provided to regulators could prompt

them to compel insurers to modify a range of business

activities from product portfolios to reinsurance

arrangements. It is likely that regulators will make

specific detail changes within their jurisdictions too.

There is a possibility or risk that insurers have the

same kind of process of debate as was seen in Europe

for Solvency II with regulators and the IASB.

The workers are the people who will deliver the change

and operate in the new environment. IFRS 17 will lead

to a significantly different operating model requiring an

increased actuarial involvement during the close and

valuation processes. Calculation of net income will

become highly complex. The new operating models

will in fact put actuaries at the centre of periodic close

processes. Such a change will shift organisation

dynamics, structure and costs. Insurers could choose

to offset the likely cost escalation triggered by

increased actuarial involvement through investing in

higher levels of automation and more sophisticated

modelling. Both of these will be capital-heavy and

required at a time when skills specialists will command

a premium between 2017 and 2021. Whichever

strategy insurers take, their back offices will become

more complex and expensive.

Most insurers will require external support from a

range of consultancies in delivering change. Some of

the major firms have customisable-off-the-shelf

solutions available, some offer subject-matter expertise

and others offer resource back-fill. The challenge for

insurers with suppliers is to secure resources before

they become too scarce or too expensive. For

example, there are about 65,000 actuaries in the

world, but a common view is that IFRS 17 will require

equivalent to 100,000. This type of shortage will drive

prices up. It also indicates the need for smarter

processes with higher degrees of automation.

In summary, all stakeholder groups will be subject to

unwanted changes and pressures. For customers and

investors, the impact can be minimised by careful

management of the transition between IFRS 4 and

IFRS 17 by putting good planning and communication

at the centre of the effort. Workers will face a different

kind of pressure because people are usually resistant

to externally imposed change. Senior managers in the

business will find their roles and responsibilities

changing and their levels of authority and culpability

also shifting. Moreover, there will be an increased

resource requirement, not just to deliver the change,

but in perpetuity.

Table 3. An insurer’s stakeholders in IFRS 17

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4. WHERE WILL IT HAPPEN?

One hundred and sixteen countries have adopted IFRS, most others are working towards

it (see figure 4). They will roll out IFRS 17. The major exception is the USA which

maintains US GAAP. The imminent publication of IFRS 17 will move the IASB’s

standards even further away from the US’s, possibly leading to a permanent divergence

in the two sets of standards. American insurers will have to adopt the standard for all

their insurance entities in IFRS jurisdictions including Canada and Mexico. Determining

where to lead these initiatives from will be a key decision for each business.

Geographically there are essentially three ways of

delivering IFRS 17: firstly, develop local solution for

each entity, second, develop a ‘group solution’ then roll

out, or thirdly, a hybrid of the two (see table 8, options

10 to 12 on page 23). The optimal approach will

depend on which markets an insurer operates in. For

example: If a company operates 10 insurances

entities, but they are all within the European Union,

then the accounting and valuation requirements will be

exactly the same. It will make sense for a quite

centralised approach to deliver IFRS 17. However, if

that same company has an eleventh insurance entity

in, say Australia or China, where the regulators is

highly active, then there is real merit in proposing a

level of local solution.

Accounting processes will also be subject to

geographic decisions, for example whether to localise

accounting systems so they diverge from other entities

and more easily change to align to local requirements,

or whether to centralise. The latter could be more

expensive and time-consuming to develop, but would

lead to much more efficient operations after

completion.

Actuarial models will require similar decisions –

whether to build central models with local shells or to

allow each entity to adopt its own version that suites its

needs? We at Innovation suggest that an approach

that allows local configuration of a core model is

usually the best approach because it maintains central

consistency, eliminates duplication and provides a

useful level of flexibility for local teams.

Another factor an insurer needs to consider is the

location of skills. Over the last twenty years we have

seen a surge in the diversity of locations in which

people can work from to achieve a single outcome.

However, we believe, that personal face to face

interaction still outstrips all other means of

communication. In early stages where strategic ideas

are debated and discussed, we suggest that a core

team leads the work from a single location whilst

maintaining links to local teams.

Figure 4. World map of expected IFRS application in 2021

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5. WHEN WILL IT HAPPEN?

Following the IASB’s decision to confirm IFRS 17 will be effective on 1 January 2021.

This means that for businesses with normal January to December accounting reference

period, the first IFRS 17 annual statement for most insurers under will be made between

January and March 2022.

Insurers have 43 months to deliver IFRS 17. As with

any IFRS change, insurers will be required to produce

comparative accounts.

Investor perspective

The IASB has made a major concession to insurers, in

the requirement to produce three balance sheets and

two income statements for their first set of IFRS 17

accounts. This means that comparative accounts will

only be mandatory for 2020. However, at Innovation

we are aware that investors demand more:

We have surveyed investors about their appetite for

information, especially around comparative accounts.

Our data shows that 70% of investors want to

understand the impact of IFRS 17 on insurers’ balance

sheets in 2019.

Investors differ in the number of comparative accounts

that insurers should provide. No investor wants to see

the regulatory minimum (one year). About 40% wish to

see two years, another 40%, three years and the

remainder, five years or more. Investor expectations

could well drive the timing of delivery.

Delivery perspective

Most insurers have commenced some work on the

technical aspects of IFRS 17 or started engagement

with external suppliers, but not mobilized full size

delivery teams. At Innovation we believe that IFRS 17

delivery work will have a noticeable impact on resource

availability by September 2017. The number of people

involved will climb steadily and peak in 2018 and 2019.

Experienced resources are likely to be scarce and

expensive during this period.

Insurer’s choice

Insurers can choose to implement IFRS 17 early. Early

adoption is unlikely to be beneficial to an insurer

unless analysis of its new income and equity positions

are favourable from an investor perspective. Early

adoption of IFRS 9 and IFRS 15 would also be

required. Alternatively, it is possible they could, to

some extent choose to deliver late, but only up to

eleven months and at a heavy price: by changing their

accounting reference period prior to January 2021. A

costly exercise, it would require all manner of technical

and back-office changes. It could also leave investors

suspicious. Moreover, it would not be allowed in

jurisdictions where insurers have legally defined

accounting periods. For more information, see table

10, options 15 and 16, page 24.

There are many more timing factors to consider. We

can work through these with you, however the major

milestones are illustrated in the next figure.

Figure 5. Major milestones for IFRS 17

2017 2018 2019 2020 20222021

period of constrained resources

IFRS 17 standard release

begin handover to operational teams

comparative complete

standard effective

first IFRS 17 interim announcement

first IFRS 17 annual close

first IFRS 17 annual disclosures released

comparative measurement commences

opening balance sheet

IFRS 16 (leases) effective

IFRS 15 (revenue) effective

IFRS 9 (financial instruments) effective

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6. HOW ARE WE GOING TO DO IT?

Every insurer has several options

The delivery of IFRS 17 will be a long and complex process. Understanding delivery options will enable insurers to plan

their business’s work in the most cost effective manner. Below is a list of high-level strategic delivery options with

Innovation’s view of the merits of each. Their relationship with the overall flow of delivery decisions is shown in figure 2

on page 8. Later sections of this paper will build on these options with fifteen more and discuss how to set them up for

success.

Strategic Options

Strategic options Merits and risks in each approach

1. Deliver the minimum change

to become compliant

(Do minimum option)

Even a ‘minimum’ change will require large effort and expenditure. The new

complexities of IFRS 17 will not have been managed down. This option will also

lead to a higher operational cost than a more optimised approach.

In addition, pursuit of a ‘do minimum’ approach would exclude communication

with investors. This activity would have a sizable impact on the investor

perception and consequently market capital.

Despite this gloomy view, there is merit in pursuing minimum change for

insurers under particular circumstances. If, for example an insurer was targeting

a significant structural change, such as changing accounting and actuarial

systems in 2022 or later, then there would be merit in delaying complex

investment until the new operating environment is defined.

2. Deliver minimum change,

plus undertake work to

manage investor relations

(Do minimum, plus take care

of investors)

Similar to the work above with the addition of work to specifically support

investor relationships.

A team could be generated and dedicated to managing investor expectations.

This would enable good investor management through this period. However, it

is likely to be a duplication of work that will have to be undertaken anyway,

doubling the costs in certain areas of work, plus exposing the business to

governance and audit risks. As such, it may be financially beneficial to pursue

the next option.

3. Optimise level of change to

minimise operational cost

(Pragmatic option)

Our research shows that this option is the one investors prefer.

The level of necessary back-office change required of insurers will be massive.

It is unlikely that insurers will be forced to apply such large and structural

changes in their back-office operations for a long time. This being the case it

would be prudent for insurers to deal with structural and peripheral issues that

have built up in their operating models as their businesses have evolved.

Some of these issues could be resolved at low or zero cost in the course of

delivering IFRS 17, however, issues would first need to be acknowledged,

documented and understood. It could be useful for insurers to benchmark each

other. Benchmarking may appear to be an unattractive option, but as insurers

don’t compete on their back offices and IFRS imposes greater transparency,

some insurers may find such activities advantageous.

Required cost of investment is unlikely to palatable to company boards unless

the investment cost is measured in comparison to operational benefit of

delivering the change in business cases.

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4. Use IFRS 17 as an

opportunity to deliver

something fundamentally new

and different.

(Do maximum option)

Insurers may wish to take the opportunity to fundamentally re-engineer how

they manage their businesses. From the perspectives of business processes

and accounting standards this will be achievable in the pragmatic option above.

Nevertheless, even more could be done. Accountants and actuaries could

target full automation of their close processes. They could decide to replace

long-standing models and have new management information systems

delivered.

All of these are worthy pursuits, especially if the result is a slicker, quicker,

leaner and lower cost back-office that is able to rapidly respond to management

and investor demands. However, every additional initiative potentially increases

the complexity and risk in delivery.

In our view is it useful to begin the strategic design process by being idealistic,

then paring back delivery planning to align with budgets, risk, timing and

capability.

Early identification of the best ideas and improvements will enable the business

to make considered and timely decisions. Some proposals will be deemed too

risky, whilst others can be prioritised and properly managed (these end up

contributing to the pragmatic option).

One area we do propose caution on is in systems. Data entry, storage,

transformation, processing and reporting is highly complex in most insurers.

Insurers usually face a huge challenge in maintaining their legacy systems

(usually policy systems). Changing major systems during this period should be

treated very carefully. If an insurer is keen on changing major systems during

the IFRS development period, we would urge them to put contingency plans

and funding in place to maintain legacy systems in an IFRS 17 compatible

manner until the new systems are fully signed off. We do suggest though, that if

systems change is on any party’s agenda, that they place particular focus on

ensuring good data standards, to enable good systems design.

Table 4 – Strategic options for delivering IFRS17

There will be a large number of subordinate options to each of these strategic options. We discuss sixteen relevant

options in section 2, on pages 23 to 25.

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7. HOW MUCH WILL IT COST?

The cost of work between 2017 and 2022 will vary according the strategic and delivery

options the insurer wishes to undertake. The main cost choice for insurers will be whether

they wish to pay a high price for investment and realise a relatively low operational cost,

or enjoy a low investment cost and endure a high operational cost after the standard is

implemented. The options around this are summarized in figure 1, page 5 and discussed

in detail in section 2.

From a management perspective, good clarity of

strategic objectives will help focus the whole initiative

and prevent nugatory spend. If work commences

without clearly communicated precision, delivery teams

will act slowly in developing their proposals and

solutions. Moreover, work secured from suppliers may

be wasted and have to be undertaken a second time.

Cost factors

Detailed cost planning should be undertaken for any

desirable options. In addition, we recommend

consideration of the following factors:

• Scarcity of skilled resources and competition to engage them at the same time

• Amount of elapsed time required to do the work

(alternative is to procure off-the-shelf solutions)

• Scale of the required organisational changes

• Scale of the required business process changes

• Scale of the required systems changes

• Type of supplier contacts (fixed price versus time and materials)

• Number of jurisdictions in which the insurer operates

• Risk appetite, treatment of issues and key decisions already identified in this paper

When Innovation started its research on IFRS 17s

prototype (IFRS 4 Phase II), we estimated that the cost

would be approximately US$8M for work within the

parent company and approximately the same within

each country in which the insurer operates (so for an

insurer operating in 10 countries US$88M). In

discussion with other delivery firm in the last two years,

many believe it will be higher. Since our early

estimates, we have conducted a study across the

industry.

What the industry says

We asked stakeholders what they thought the delivery

costs would be. Just over 40% of people who work at

insurers believed implementation, based on our

scenario would cost less than US$50m, just under

40% believed it would cost between US50m and

US$100m. About 20% of staff believed that it would

cost over $100m.

About 60% of staff at delivery firms believe that the

cost would be between US$50m and US$100m.

Two thirds of staff at regulators believe that delivering

IFRS 17 will cost insurers less than US$50m.

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2. DELIVERING IFRS 17

MAJOR CONSIDERATIONS

Each insurer is going to rework its valuation and accounting processes. The insurer’s

approach to product development will change. New processes and models will be

required for closing the books and undertaking valuation. Current configuration of

organisations and systems will not suit an IFRS 17 environment, so these will have to

change too. For example, actuarial teams often reside separated from their accounting

colleagues, but IFRS 17 will place actuaries much closer, if not at the centre of

accounting processes. This will mean a much higher integration of teams, leading to

organisational changes. In addition, systems supporting the people and the processes

will also need to be reengineered.

These points lead to further questions about how much

and how far a business is prepared to go to undertake

changes. Most insurers do not prioritise investment in

their back-office operations, however there is a case to

use IFRS 17 as an opportunity to undertake ‘corporate

house-keeping’ by aligning its accounting policies

across all its entities. Especially as, a post-IFRS 17

accounting and actuarial environment will be much

more operationally complex, therefore costlier, than the

current regime.

If the insurer chooses to pursue the ‘minimum’ amount

of change to be compliant, they are likely to pay a

heavy operational overhead for maintaining the

minimum required standards. It will also face increased

operational complexity because of the increase in

volume and complexity of calculations.

If the insurer chooses to take the opportunity to

optimise its processes it will compete for scarce

resources with other insurers. For example, there are

currently about 65,000 practising actuaries in the

world, a common consensus is that the number of

required actuaries by 2022 could be 100,000.

Insurers also face a choice about how much support

they seek from outside organisations. Most large

accounting firms and consultancy firms offer expertise

in the accounting and actuarial approaches to the

standard. Others, such as Innovation are experts in

delivery. At least one major accounting firm has even

invested in training a large number of new actuaries in

anticipation of delivering the changes for clients.

Deciding what level of external intervention will be

required is a key decision in setting the insurer’s

delivery strategy. It may be tempting to do the work in-

house, but suppliers have been developing processes,

calculations, models and even systems for a number of

years. If chosen judiciously these will reduce both

investment and operational costs.

Consideration will also need to be given to when

outside support is used because insurers who

commission support late or at short notice are likely to

pay a heavy premium for quality suppliers such as was

seen in Europe during Solvency II implementation

between 2009 and 2011 when some specialists cost

50% more than they had in 2007.

The insurer will need to consider its approach to the

autonomy of each entity or country in its business. A

centralised approach is likely to be initially challenging

and complex. However, in the long-term, operational

efficiency will be improved in comparison to a solution

where each entity has complete autonomy. Included in

decisions around autonomy, will be the approach to

how journals report into ledgers and the difference

between central and local ledgers. The same

sequence of issues will be faced in considering models

– whether to have centralised models, local models or

produce a core model with local shells.

IFRS 17 will not be developed in isolation. Regulators

in all countries are becoming more interventionist. Risk

based capital requirements (akin to Solvency II) are

being rolled out now and will continue into the late

2020s in many jurisdictions. Other IFRS changes are

coming too. The ones most likely to affect insurers are:

• IFRS 9 Financial Instruments (2018, but deferred

to 2021 for most insurers)

• IFRS 15 Revenue from Contracts with Customers

(2018)

• IFRS 16 Leases (2019)

20

DELIVERY OPTIONS

After the strategic direction is settled (previously in section 1.6 How?) there will be

delivery options. This section discusses twenty common options available to insurers.

There will be a great deal more options and sub-options available to each insurer, but

their relevance will depend on the people, processes and systems the insurer currently

has, and those it intends to have by 2022. The earlier these are explored, the more likely

implementation of IFRS 17 will happen in a planned and controlled manner.

The workflow is illustrated on the next page (figure 6)

and discussed in detail thereafter. For this paper the

options discussed are:

• Delivery options 1 to 5 - Decide workload balance

& volume of outsourced development (Table 5)

• Delivery options 6 & 7 - Decide whether to buy off-

the-shelf systems to fast-track delivery (Table 6)

• Delivery options 8 & 9 - Decide whether to

outsource operational work either temporarily or

permanently (Table 7)

• Delivery options 10 to 12 - Decide where the

elements of the work will take place (Table 8)

• Delivery options 13 & 14 - Decide timing of

calculation actions for comparative and opening

balance sheet work (Table 9) • Delivery options 15 & 16 - Decide whether to

adopt early, on time or late (Table 10)

21

Figure 6. Breakdown of strategic and delivery options for IFRS 17

22

1. Develop in-house

and backfill

operational work

This approach could be dubbed ‘The artisanal approach’, where actuaries and accountants

make their own tools that they will subsequently use to deliver the operational work.

inconsequently when the process and the systems are operational, the users will understand

the challenges and be able to work continuous improvement activities.

The insurer’s employees will need to learn IFRS 17 before they can effectively design and

deliver the required changes. This means that the rate of development is likely to be slower

than in other organisations who use external support. In addition, developing the required

process, models and systems without external support risks missing optimum solutions derived

by external parties. In backfilling the operational work, insurers are more likely to be able to

retain key employees during the development of IFRS 17, but the cost of backfill could be high.

Backfill costs could be reduced by utilising agency / contract staff on short or fixed term

contracts.

2. Develop in-house

and don’t backfill

operational work

As previous, except the following: In not backfilling operations, many actuaries and

accountants will have much increased workload. This will make working for the insurer less

attractive at a time when other insurers are likely to be offering premium job-offers to

prospective accountants and actuaries, especially those with IFRS 17 experience. This will be

especially bad for organisations who are lean.

3. Outsource

development work

and maintain use of

staff for operational

work

This is the type of approach used by organisations in manufacturing industries where there is a

high degree of separation between those who develop and those who manufacture the goods.

Insurers tend to be more artisanal, where accountants and actuaries often make their own tools

(based on frameworks from outside suppliers) and use them to deliver the operational work.

This route does have many merits; It minimises the disruption to current operations; utilises

experts whose approach and insight would not otherwise be applied; benefits the client by only

paying for mature expertise (whereas internal people will be learning as they go along), but

leaves staff with minimal understanding of IFRS 17 and its mechanisms. Possibly also leaves

the insurer dependent on outsourced organisations who will have different priorities and

motives to the insurer.

4. Develop in

partnership with

suppliers and

backfill operational

work

A good number of suppliers to insurers have been developing technical and business process

solutions to IFRS 17. If chosen and managed carefully they could offer a good service and

minimise disruption in current operations

The risk that if not properly managed, the suppliers deliver what is best for the supplier, not the

customer. Use of several suppliers specialist in certain activities may treat this risk. Backfilling

operational work can be undertaken by agency or independent staff on short or fixed term

contracts. This would be significantly lower cost than compared to consultancy staff.

5. Develop in

partnership with

suppliers and do not

backfill operational

work

As the previous option except: Where work becomes unexpectedly high or difficult, there will be

two types of problem that can emerge. The first when operational work becomes prioritised

over the development work, meaning that the rate of development slows down, and the project

is delayed. The second is that an unscrupulous supplier sees complexity of delays as an

opportunity to exploit shortages at a high cost to the customer.

Table 5. Delivery options 1 to 5 - Decide workload balance & volume of outsourced development

23

6. Buy off-the-shelf

models

A number of suppliers have developed Prophet or MoSes IFRS 17 valuation models. These

can be adopted by insurers and ‘plugged in’ to the operational process, short cutting the

development time for key and complex areas of the process. The risk that the insurer becomes

dependent on the supplier to maintain and modify the models.

7. Buy off-the-shelf

accounting systems

There is at least one full accounting system on the market that has the required components for

the insurer to be IFRS 17 compatible, it is provided by SAP. There may be other systems too.

Changing accounting systems is a long-term and challenging process. All manner of factors

need to be decided, including data standards, version control and service management.

Backward-compatibility with legacy systems will be a key challenge.

A decision to change accounting systems should not be a hurried process. In addition,

changing systems in the critical period between 2017 and 2022 period will make managing the

back-office of the business more complex.

Table 6. Delivery options 6 & 7 - Decide whether to buy off-the-shelf systems to fast-track delivery

8. Outsource

operational work

temporarily

A number of insurers have outsourced their valuations to external suppliers. Conceptually they

could outsource their whole close process to a supplier as long as the audit and governance

requirements were fulfilled. In the short term, outsourcing of comparative accounts could be

very attractive for some insurers because it will reduce the pressure on accounting and

actuarial teams in the 2019 to 2021 periods. The option could also be used to delay internal

implementation of IFRS 17 if for example, there are other pressures on the business (such as

readiness, M&A activities or systems engineering issues).

9. Outsource

operational work

permanently

Elements of the process permanently ceded to an outside supplier would simplify the amount of

internal management required within an insurer Outsourcing will always be a double-edged

sword, day-to-day costs become relatively fixed, but changes in service become costly. Service

standards tend to be low and responsiveness reduced. Despite the downsides, it does make

management of the core business simpler and more predictable.

Table 7. Delivery options 8 & 9 - Decide whether to outsource operational work either temporarily or permanently

10. Local

development of the

standard

Allow each entity to develop their own ledgers and models in response to IFRS 17. This will

allow each entity to closely work towards perfecting local regulatory requirements. The corollary

of this is that an insurer’s entire accounting and actuarial process would become fragmented

with proliferation of duplication. It would be difficult to manage from a group perspective. Audit

would become expensive. Operational duplication would be rife. Once operational it would be

much more difficult for actuarial teams to be able to validate head-office numbers where local

anomalies occur.

11. Central

development of the

standard

Design, plan, manage and deliver IFRS 17 from a centralised location.The previous option

demonstrates the inadequacies of a localised approach. A centralised approach gives the

insurer the opportunity to resolve all these issues. However, a centralised approach can throw

up its own problems – entities will be subject to different details in the standards, meaning that

there will be local nuances. To attempt to control and tie all of these distinctions down at a

central point would most likely be counterproductive when expertise is locally based.

12. Develop some

of the solution

centrally and some

locally

This option is a hybrid of options 13 and 14. It recognises that there are merits in central

working and local working. Strategy, planning and design is easier when members of a team

are co-located. This will suit most insurers because they have corporate accounting or actuarial

solutions. Nevertheless, some activities such as detailed adjustment of models may be best

handled locally. This option recognises these compromises. There exact split will depend on

how complex and fragmented the insurers organisation, processes and systems are.

Table 8. Delivery options 10 to 12 - Decide where the elements of the work will take place

24

13. Produce

comparative

accounts

concurrently

Comparative accounts are usually more easily done at the time the original accounts are

created because retrospective accounting and disclosure creation can be troublesome. In

addition, it can be difficult to devise useful commentaries when time has passed.

The disadvantage of contemporaneous production of comparative accounts is twofold. First it

requires the IFRS 17 process to be in place and operationally functional by the time the

comparatives are undertaken (noting the need for an opening balance-sheet position). This

means to do this an insurer would have to have in place the ability to convert data at the end of

2019 for the opening balance sheet. Second, the processing of the accounts would require a

doubling up of effort. Assuming that most businesses are run in a lean manner, this would

require extra resources.

14. Produce

comparative

accounts

retrospectively

In producing the accounts retrospectively, the insurer has the opportunity to delay completion

of its business process design and modelling. The disadvantage of this option is that because

the work is done retrospectively it would be difficult to understand or correct surprising

outcomes.

Table 9. Delivery options 13 & 14 - Decide timing of calculation actions for comparative and opening balance sheet work

15. Adopt early

Early adoption of the standard is allowable. It is advantageous to any insurer because it will

give it a much greater amount of time to understand and explain the changes in the balance

sheet to its investors. It may also be advantageous to a business that it discovers that its

position is actually improved by IFRS 17, or that investors view of the business is actually

improved.

Comparative accounts would be required; so very early work would be required to enable to

business to re-engineer its processes to be able to accomplish early adoption. It is likely that

such a delivery would require off-the-shelf solutions and a great deal of external support.

16. Adopt late Some insurers have been lobbying hard to delay the standard further. It is likely that they have

assessed their business’s capability and believe it will not be possible to be compliant in time.

Even a small delay might help some businesses if it were possible because they could benefit

from suppliers learning experiences at other insurers.

In some cases, it would be possible for some or all entities within an insurer delaying. The route

to enabling a delay lies in each company’s accounting reference period. For most businesses it

is January to December, making the first scheduled annual report for IFRS 17 in December

2021. If an insurer moves its accounting reference period prior to 2021, then it may be able to

delay 1 month, for every month it shifts with a maximum delay of 11 months. All manner of

legal issues would have to be resolved, some national regulators would not allow it, an insurer

would probably lose credibility in doing it and it would be very costly.

Table 10. Delivery options 15 & 16 - Decide whether to adopt early, on time or late

25

ESTABLISHING A PROGRAMME TO DELIVER IFRS 17

This section discusses the kind of structure that would

support successful delivery of IFRS 17. Before

discussing the structure, we at Innovation believe it is

essential to table our view that the management of

change is best undertaken people whose expertise is

in delivering change. Subject-matter-experts in

particular elements of the standard are an essential

part of the decision-making structure. However,

planning and management of the change is best

undertaken by people who have no solution bias and

whose primary skill is in planning and managing the

process of change. It is the responsibility of these

people to empower subject-matter-experts to make the

right decisions at the right time. Based on the

challenges already discussed and Innovation’s work on

IFRS 17, we propose splitting the work in nine

workstreams:

Figure 7. The proposed nine IFRS 17 workstreams shown in proportion to the overall workload

It is immediately obvious that there are no separate

accounting and actuarial workstream s. As already

discussed, the IFRS 17 operating model will require

accounting and actuarial activities to become highly

integrated. Consequently in a post-IFRS 17

environment, there will be no justification for such

demarcation in the financial management process.

Workstream s 1 and 6 are important because a large

number of internal stakeholders will find the process of

change an awkward experience. The actual shape of

the emergent organisation should be driven solely by

the target-operating-model (TOM); this would be

developed in workstream 4. Two of the work streams,

4 and 5 may benefit from being further broken down

into smaller component parts.

The structure illustrated in figure 7. does not account

for the complexities of businesses operating

internationally. Most insurers will operate in many

countries, so each business will need to take a view on

what proportions are undertaken centrally and what

proportions are delegated to local entities. At

Innovation we have developed a full understanding of

the structure. We have developed a detailed delivery

management structure on this basis and are in a

position set it up and deliver it of clients so wish.

26

PROGRAMME WORKLOAD OVER TIME

The total workload will pick up at the start of 2017 and

complete by early 2022 when the first annual

statements are made. Peak workload years are likely

to be 2018 and 2019.

Each insurer will different numbers of entities in

different countries and different sizes of workforces so

here we provide an estimate in proportions.

Figure 8. Estimated programme workload over time based on a January 2018 start.

2017 2018 2019 2020 2021

WS1. People and organisation

WS2. Legal and regulatory relationships

WS3. Contract management / procurement

WS4. Business model / TOM

WS6. Internal stakeholder management

WS7. External / shareholder relations

WS8. Country work streams

WS9. Programme Management

WS5. Systems development

IFRS 17 standard

released

IFRS 17 standard

effective

Comparative

commences

27

DELIVERY SCHEDULE AND ROAD MAP

Anticipated full implementation of the IFRS changes expected to be 1 January 2021 so

most businesses will be required to complete their first IFRS 17 annual close in

December 2021. Comparative data and opening balance sheet work will be in operation

from January 2019 – it is likely that investors and the wider market will start to request

relevant information about the insurer’s position on IFRS 17. Insurers have 2 years to get

its operating model right and 4 years to get its systems implemented and fully

operational.

An approximate timeline for the programme is shown

on the next page. There are likely to be four major

planning issues that will shape the schedule:

• There is rarely appetite to invest in back-office

functions.

• Teams leading the change will find it challenging

to justify to their board the high levels of required

expenditure (some estimates are that for larger

businesses the combined cost of delivering IFRS

17 could be US$100 million).

• Company boards may wish to take time over

considering such large investments. This risks

delay in start dates. The degree to which there is

an appetite to use the change as an opportunity to

deliver fundamental re-engineering of how the

finance functions within an insurer operate. Some

insurers will use this as an opportunity to align

their accounting policies and integrate their

organisations. Others will de-risk the project by

placing a moratorium on strategic change during

this period. The schedule will change accordingly.

There is a shortage of skilled staff to do the work and

probably not enough people to ensure the insurers

have all the people they need. This is especially true of

actuaries, there are about 65,000 actuaries worldwide,

yet with the implications of IFRS 17, we would

reasonably expect the requirement to exceed 100,000

by 2021. As a result – schedules may be in part

determined by availability of resources.

IFRS 17 is not something that has been done before.

Very few people world-wide have spent time working

on the subject, so many newcomers are required. They

will take time in learning the practices and the culture

of the organisations.

Innovation is aware some insurers have already

started this work and that others haven’t. The risks

associated with going early, or delaying are discussed

in elsewhere and shall not be repeated here. However,

we recommend that work commences as early as

possible to ensure that businesses understand the

strategic implications of their decisions and that work is

planned, controlled, predictable and orderly. This

means creating awareness and undertaking gap

analysis now. It will enable insurers avoid incurring

incremental cost later

The actual scale of the technical implementation will

depend on the TOM and the current systems’

compatibility and adaptability, and is currently

unpredictable. The illustration below does not show in

detail the various technical and business

implementations. They can be approached in a

traditional way, an agile way or as a mixture.

28

PROGRAMME SCHEDULE

Figure 9. Illustrative IFRS 17 programme schedule based on a January 2018 start.

2017 2018 2019 2020 20222021

2017 2018 2019 2020 20222021

design of actuarial model

model build

model test

model design

model build

test / rework

comparatives and opening balance sheet

data remediation and fixing

simulations and modelling

divide into product portfolios

identify cohorts of products

external communication of changes and impact (create market acceptance)

set up programme

strategic shaping

gap analysis

TOM design and key decisions (accounting solution)

interpret the standard and develop calculations

update interpretation and calculations

update interpretation and calculations

update interpretation and calculations

update interpretation and calculations

update interpretation and calculations

IFRS 17 live environment

IFRS 17 live environment (if not producing retrospective comparative)

handover to operational teams (if not producing retrospective comparative)

Handover to operational teams

Possibility of further work between IASB and FASB to converge accounting standards

period of constrained resources

IFRS 17 standard release

begin handover to operational teams

comparative complete

standard effective

first IFRS 17 interim announcement

first IFRS 17 annual close

first IFRS 17 annual disclosures released

comparative measurement commences

opening balance sheet

IFRS 16 (leases) effective

IFRS 15 (revenue) effective

IFRS 9 (financial instruments) effective

29

ANTICIPATED ISSUES, RISKS AND OPPORTUNITIES IN

DELIVERING IFRS 17

A number of issues, risks and opportunities have been hinted at or discussed in detail

elsewhere. This section briefly discusses the biggest issues, risks and opportunities

ISSUES ASSOCIATED WITH DELIVERY

ISSUE

1 Resource

availability

All institutions will be committing to do this work at about the same time. There is already

a shortage of actuaries in the world and also a shortage of project managers with

insurance experience. IFRS 17 will exacerbate this situation. Innovation’s experience of

the Solvency II peak where programme managers cost 50% more because of high

demand.

2 Alignment with

local reporting

standards

There will be differences in each country – both in terms of product/policy and local

regulators detailed requirements

3 Level of

information flow

from Actuarial to

Finance will

massively increase

Up to sixty line items of reporting will be required

4 Analysis of

profitability profiles

and modelling of

potential outcomes

Early analysis of the profitability profiles will help understand what the information gaps

are

5 Conflicts with

Solvency II and

other risk-based

capital reporting

requirements

It may be possible to lever benefits from SII, but there are significant differences such as

contractual service margin, presentation and disclosure requirements and transition

Table 11. Issues associated with delivery

30

RISKS ASSOCIATED WITH DELIVERY

RISK

1 Unexpected

valuation changes

lead to different

profitability profiles

that shock

investors

If the new reporting regime causes a big shift and recalibration in risk / liability / P&L, then

this could have a major impact on the business’s market perception. Companies who do

not communicate well may find the market against them.

2 Commit too late Scarce resources with become even more scarce. Consequently, prices will rise as quality

people become ever more in demand.

3 IFRS 17 TOM

design isn’t

satisfactory

Despite a new model, old or bad practices continue

4 Much duplication

of work in each

country

Even though IFRS 17 is a standard, the detailed outputs in each country will be slightly

different. This results in high costs and workload

5 Resistance to

change

Not all stakeholders buy into the change of P&L reporting from current to forecast. It is

likely that there will be a period of resistance to the concept of the changes by some

stakeholders.

6 Major M&A

disrupts

development

M&A activities are disruptive to business and back-office management. It can take a

decade to align organisations, processes and systems. Adopting a pre-existing business

during the IFRS 17 development period will make delivery costly and challenging

Table 12. Risks associated with delivery

31

OPPORTUNITIES BUSINESSES COULD CHOOSE TO TAKE IN

DELIVERING IFRS 17

OPPORTUNITY

1 Lever commercial

advantage

As with all new regulatory regimes, IFRS 17 will give every insurer the opportunity to

lever how it implements the standard to increase market advantage

2 Alignment of

accounting policies

in different entities

Many insurers have grown by acquisition. When organisations are merged into the

new parent, they often retain legacy methods and processes. This makes the act of

closing books more complex than it would be if all policies, methods and standards

were aligned

3 Implementation in

multiple countries

Undertake a pilot in lead countries and roll-out progressively, learning lessons and

making improvements on the way

4 Some benefits may

be drawn from

Solvency II and Risk

Based Capital

reporting

It may be possible to lever some benefits from Solvency II and risk-based capital

work but there are also significant differences such as contractual service margin,

presentation and disclosure requirements and transition

5 Find out early the

technical challenges

The technical challenges will need to be defined, some are universal, and many are

unique to each company. Getting an early view will allow key decisions to be made in

an orderly and timely way

6 Improve the

business processes

Taking those opportunities could be factored into the programme and achieved at the

same time

7 Organisational

opportunities

The new way of working will give rise to a number of opportunities to change or

renew how people operate in the affected areas.

8 Systems

opportunities

Systems changes will be inevitable. Often the approach by businesses is to modify a

number of systems independently. If planned far ahead, the costs could be invested

to generate a strategically advantageous outcome.

Table 13. Opportunities businesses could choose to take in delivering IFRS 17

32

NEXT STEPS FOR INSURERS

There are over 200 factors that each insurer will have to consider before it commits to a particular delivery path. Every

insurer will then have additional issues and challenges of its own that it will have to face. These factors need to be

recorded and understood to make good decisions that will lead to robust and low risk delivery. This section summarises

the strategic actions that should be undertaken now to support that work.

NEXT STEP

1 Start to understand

the investor

implications of the

change.

There is a risk that investors will respond negatively to the impact IFRS 17 has on

your business. Model the changes in today’s balance sheet and perform a gap

analysis as to how investors might respond

2 Communicate the

need for change

Creating awareness of the need for change is the first step to enabling the change to

be delivered. Communicate the strategic need for change and invite comment and

views from the affected user population.

3 Understand what

needs to change

Early gap analysis will allow the business to begin to understand the scale of

potential changes and kick-off the planning cycle. Make decisions about what

opportunities you wish to take to align your accounting policies, reduce complexity

and optimise your organisation.

4 Table key issues and

decisions

Strategic decisions take a long time for experts to work through. Identifying key

decisions early will allow the process of debate and investigation to commence.

5 Assess strategic fit IFRS 17 will be one of a number of programmes undertaken over the next 4 years.

Many will have interdependencies and some may negate or duplicate each other.

Assess IFRS against all other strategic initiatives and assess constraints,

dependencies, assumptions, clashes, pinch-points and duplications.

6 Identify delivery

options

There are always many different ways of delivering a set of outcomes. Create a list

of all the delivery options – use our template to speed the process up and add extra

options unique to your business. Prioritise what is more is more important – low

investment cost or low operational cost

7 Set up a team to do

kick off the work

This work has to be done. It would be better done before it becomes urgent and

resource availability becomes an issue. Decide whether there is the capability and

capacity to do the work wholly in house or whether some or all of it is contracted out.

8 Commence the act of

planning the full cycle

of the work

Plan the implementation of change in detail. Build a basic framework for the end-to-

end process of change. The information provided in this paper should enable you to

do this.

Table 14. Next steps for Insurers

33

3. INNOVATION IS DELIVERING IFRS 17

Innovation Business Vision is a company that delivers change in large businesses.

Innovation offers one service – we supply people who are great at defining and delivering

change. We can support internal teams at insurers and manage external suppliers.

INNOVATION IFRS 17 CAPABILITIES

Innovation currently has staff delivering IFRS 17

projects for insurers in Asia and Europe.

Our people are experts in supporting large

organisations in shaping and planning complex

business change – we consider these skills core to the

project management skill set

We have expert project and programme managers

who are exceptional at getting actuaries, accountants

and senior business users to define, plan and deliver in

financial services. These people, whilst are not experts

in IFRS, are experts in enabling subject-matter-experts

to do the work productively and cost effectively. This

reduces overall cost, complexity, pressure and timing

of the work.

INNOVATORS

We are powered by our people; we call them

‘Innovators’. Innovators are people who share our

values and have the experience and ability to serve

Innovations customers well. Because Innovation is

solely concerned with delivering change, we have high

standards for people in these subjects. Our people are

‘rounded’, they have a wide range of management and

delivery skills – they get their hands dirty and they

have done it successfully over a number of years.

Our staff are a mixture of employees and independent

consultants. The independent consultants are usually

very senior, with decades of experience and enjoy the

challenge of working in different business

environments. Many of our independent consultants

have worked with us for over a decade. This business

model allows Innovation to be lower cost and have a

flexible approach to our customers. Three key features

that differentiate Innovation from bigger and more

general consultancies are:

• We only supply the kind of people the client requires – NOT whoever we have available.

• We do not swap out senior people for more junior people once a job has started.

• Customers do not pay for large operational overheads implicit in charges made by big firms.

Innovation has a good roster of project and programme

managers. We rate our people according to an

assessment system that demonstrates their abilities

relative to our client’s needs. We ensure that we only

supply great people to our clients by undertaking

extensive selection analysis prior to proposing a

particular individual to the client. If the client can

articulate what they need concisely then we can

identify suitable Innovators or search externally for

people who will add value.

INNOVATION’S INSURANCE CLIENTS

AIA

Aviva

Direct Line Group

Friends Life

Just Retirement

Legal & General

Manulife

Mercer

Prudential Corporation Asia

Prudential GHO

Prudential UK

PruHealth

Sedgwick

Swiss Re

Willis Towers Watson

Zurich Insurance

34

INNOVATION’S APPROACH DELIVERING CHANGE IN

BUSINESSES

We believe that a business has three components – people & culture, business

processes and systems & data.

The purpose of the people is to do the business. The

processes are there to provide quality, consistency,

continuity, guidance and support to the people doing

the business. Systems are put in place to support the

people and improve the processes. Modern

businesses have a near total integration between the

three. Culture is the manifestation of a business’s

values that drives its brand projection; and data is the

major asset managed by the systems and if used well

can improve capability

DELIVERING CHANGE THAT WORKS FOR THE WHOLE BUSINESS

Any business undertaking a programme or project will

be undertaking ‘business change’ whether or not it is

IT based. The impact will be felt elsewhere in the

business. Successful programmes and projects

acknowledge this and factor in potential positive and

negative impacts.

The challenge in realising this philosophy is that most

people who call themselves project managers or

programme managers are subject-matter experts in a

particular field. They are not what we call 'rounded'.

We believe that to be a great project or programme

manager you need to be able to empower the subject-

matter experts in all three areas so that the change

can be planned and delivered in accordance with the

mandated requirements. In other words: achieve the

right outcome for the business.

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THE SHAPE OF PROJECTS

A project is a piece of work that changes the state of some aspects of a business and its

content (people & culture, processes and systems & data).

Each project needs to deliver outcomes that support

the business’s overall strategy and are managed in a

structured way.

The art of project management is to define, plan,

deliver and transfer the outcome of the project into

business as usual. The total project management

activities for each project are represented in the

adjacent diagram.

All too often businesses see project management as

an administrative task when work is being delivered. At

Innovation we argue this is why so many projects fail to

deliver their mandated objectives. Projects should be

managed by people with seniority and experience in

proportion the importance of the project.

A programme is a cluster of projects that come

together to deliver a strategic shift in a business. They

often share common methods, standards and

techniques. Teams of experts may work on several

projects within a programme.

In a programme context PMOs or Innovation Delivery

Centres can take up much of the work of the project

team thus reducing overall workload and bring a

common work method across a range of projects.

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Figures and tables

Figure 1. Workflow of the decision-making process to enable IFRS 17

delivery. P 5

Table 1. Comparison of one company’s performance using different

accounting standards. P 6

Figure 2. How asking seven basic questions planning and delivery of

change. P 8

Table 2. Drivers for, and in delivering IFRS 17. P 10

Figure 3. A generic view of an insurance company’s accounting and

valuation process. P 11

Table 3. An insurer’s stakeholders in IFRS 17. P 13

Figure 4. World map of expected IFRS application in 2021. P 14

Figure 5. Major milestones for IFRS 17. P 15

Table 4 – Strategic options for delivering IFRS17. P 16 –17

Figure 6. Breakdown of strategic and delivery options for IFRS 17. P

21

Table 5. Delivery options 1 to 5 - Decide workload balance & volume

of outsourced development . P 22

Table 6. Delivery options 6 & 7 - Decide whether to buy off-the-shelf

systems to fast-track delivery. P 23

Table 7. Delivery options 8 & 9 - Decide whether to outsource

operational work either temporarily or permanently. P 23

Table 8. Delivery options 10 to 12 - Decide where the elements of the

work will take place. P 23

Table 9. Delivery options 13 & 14 - Decide timing of calculation actions

for comparative and opening balance sheet work. P 24

Table 10. Delivery options 15 & 16 - Decide whether to adopt early, on

time or late. P 24

Figure 7. The proposed nine IFRS 17 workstreams shown in

proportion to the overall workload. P 25

Figure 8. Estimated programme workload over time. P 26

Figure 9. Illustrative IFRS 17 programme schedule. P 28

Table 11. Issues associated with delivery. P 29

Table 12. Risks associated with delivery P 30

Table 13. Opportunities businesses could choose to take in delivering

IFRS 1. P 31

Table 14. Next steps for Insurers. P 32

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