Five industry-wide IFRS 17 challenges and how you can address them

1. Increased operational complexity and manual activity

Successfully implementing, integrating - and most importantly - getting strategic technology solutions compliant has led to a proliferation of tactical manual workarounds. And certain areas are particularly affected.

System integration has been particularly problematic for new components such as the CSM engine. Many have struggled to implement a strategic CSM solution which is fully integrated with systems such as the General Ledger, consolidation and disclosure production tools.

As a result, manual processes were introduced for tasks such as calculations, restructuring data and executing key controls. Having been developed quickly ‘on the fly’ the issue is these processes are more time consuming than necessary.

2. Data challenges

IFRS 17 introduced a significant amount of new data which companies collect to produce their financial and performance reporting. And the data challenges have been varied.

Some policy admin systems have found data gaps alongside granularity and quality issues. Given the cost and time to remediate, some firms have decided to work around these issues.

IFRS 17 aligns accounting and actuarial data, with common data sets used across both areas - e.g. level of aggregation (LoA) reference data. Version control issues across finance and actuarial data then results in reconciliation problems once data reaches the CSM engine and downstream reporting processes.

Firms need to perform full validation of data ahead of starting the key calculations to save downstream troubleshooting. Data challenges not caught upstream, can result in calculation reruns, inability to understand the results and the need to perform manual topside adjustments.

Many organisations aim to transform their data through strategic solutions. But in the short term, firms should consider how they can incrementally improve their data and identify quick strategic use cases for their data.

3. Control framework weakness

Control frameworks have been another challenging area with existing controls not executed as per their design. This creates significant challenges on quality, completeness and accuracy of results following audit review and execution. Due to the tactical workarounds, automated controls are not being executed - increasing risk and adding time pressure to the working day timetable (WDT).

It is important to assess the control framework and align controls with operational risk and compliance aspirations. Leveraging technical controls and embedding control automation could significantly increase control quality and speed of execution. Firms should also consider the level at which controls are being executed - building in preventative controls early on in the process to avoid downstream challenges.

4. Working Day Timetable (WDT) slowdown and deterioration

Organisations have aimed to maintain their current working day timetable, but are now seeing deterioration and slowdown due to the operational, data and control challenges. These slowdowns are proving unsustainable and are being seen across the end-to-end process, including actuarial modelling, CSM calculations and production of the primary statements and disclosures.

To resolve this time pressure, some firms have resorted to reactive measures such as adopting simplifications and manual overlays late in the process. Or having staff work long hours to get things over the line.

Companies could benefit from rethinking their WDT and optimising the process, controls and reviews throughout. Proactive identification of challenges could avoid reruns, which can be time-consuming, or manual overlays and simplifications, which are not desired.

5. People challenges and increased business as usual costs

In addition to the above challenges, there is the impact on people. Many business as usual (BAU) employees have not been brought along the IFRS 17 reporting journey and are often not sufficiently trained to run the new processes. A clear training and upskilling agenda ensures that BAU resources are able to run the finance processes sustainably.

Furthermore, firms have continued to draw on expensive external resources to augment existing BAU teams. This has resulted in significant operational run costs and inefficiencies. Employees are stretched thin and work long hours to get work over the line, at risk of burnout. This is not sustainable. It is key to assess the resources required and align this with other productivity improvement drivers to deliver finance operations. Upskilling and making BAU teams more productive would reap significant benefits.

Next steps: Be specific and purposeful in addressing challenges to drive strategic initiatives

• Complete a post FY23 reporting review: A post-implementation review having produced numbers at HY22 and FY22 will help develop a realistic remediation plan. This avoids further change fatigue and ensures efforts are focused on connecting systems, data and finance/actuarial processes. Remediation efforts will be unique to each organisation, its architecture, ways of working and implementation, which should be built into your roadmap.
• Improve data integrity and alignment, unlocking the value of cloud and data: Understanding the source, materiality and downstream impact of data defects is an immediate action, if not already completed. When focusing on how to address these data challenges, organisations should balance efforts between finance transformation and IFRS 17 remediation. Spending wisely on short term initiatives vs long term finance transformation initiatives is critical to achieving the finance vision and keeping pace with competitors. Regardless of timing, the initiatives have to enable a cloud and data powered finance function that is agile and supports analytical use cases to add value to the business and reduce the cost to serve.
• Enhance control framework: Reflect on the quality and effectiveness of controls following half year and full year reporting, to critically inform how to improve the accuracy, efficiency and audit. Organisations should focus on processes leading to the most material issues when prioritising controls. Fundamentally, maintaining focus on implementing your end state architecture will help improve control quality and automation.
• Assess new capabilities: Review technological capabilities such as AI, to improve workforce productivity. In parallel, organisations should review their finance structure, including roles and responsibilities to optimise processes and address scarcity of resources.