We are in the second half of 2021 and, from our interaction with insurers on implementation projects, they now understand the requirements of IFRS 17: Insurance Contracts (I will refer to this as “the Standard” below). They also have varying degrees of knowledge about how to test a new solution. However, we are seeing that the combination of the two: IFRS 17 and testing of a solution is proving to be a challenge. Why is this?
In simple terms, the purpose of testing is to evaluate whether a solution meets the requirements set out prior to the build or implementation phase. The objective is to find gaps, errors, or missing functionality and to rectify these to ensure the delivery of a solution that produces accurate and complete results when the solution goes live.
The requirements for IFRS 17 are complex, multi-faceted and interdependent. Implementation teams are focusing their energy on ensuring that the data, systems and processes are appropriate for their businesses. We do however see a risk that teams are possibly not dedicating adequate time to testing (strategy, planning and execution), which will lead to issues during parallel runs and live reporting.
The central challenge is that IFRS 17 is new and fundamentally changes the presentation of insurance results in the income statement and balance sheet. There are no existing results or processes to use as a benchmark; there are no reference points to compare against. The situation is further complicated by the fact that it takes a team of actuaries, accountants, and IT and data professionals to deliver a viable IFRS 17 end-to-end solution (i.e. from data source to production of IFRS 17 compliant financial statements). All three disciplines approach the situation from diverse perspectives and use different methodologies and techniques, especially when it comes to testing.
IFRS 17 has long been labelled a data intensive standard and requires considerable effort to access data at the required level of granularity. This is causing a delay in the execution of testing as representative data, in terms of both content and volume, is not readily available.
In this article I will share further details around the challenges that we are witnessing in the testing of IFRS 17 solutions. These can be summarised into five key topics:
• No existing system to test against
• A testing framework• Data readiness
• Testing team requirements