What you need to know:
The International Financial Reporting Standard (IFRS 17) Insurance Contracts, a new accounting standard which took effect on January 1, 2023, is expected to ease the process of measuring liabilities consistently.
Insurance companies must transition to the new International Financial Reporting Standard (IFRS 17) this year. This standard is applicable for annual reporting periods beginning on or after 1 January 2023, defines clear and consistent rules that will significantly increase the comparability of financial statements.
Accounting standards within the insurance industry and accounting profession have continuously evolved due to the nature of revenue in the sector and the fact that insurance contracts are valued differently across different dominions over the past three years.
The latest International Financial Reporting Standard (IFRS 17) Insurance Contracts, a new accounting standard which took effect on January 1, 2023, is expected to ease the process of measuring liabilities consistently.
Under the IFRS 17, insurers will be required to provide more detail to investors about the risks in their contract portfolio and how they are provisioning for each risk.
IFRS 17 which replaces IFRS 4 and represents a complete overhaul of the accounting for insurance contracts, is believed to be setting out principles for recognition, measurement, presentation and disclosure of insurance contracts.
Mr Kaddunabbi Ibrahim Lubega, chief executive officer of Insurance Regulatory Authority of Uganda (IRA) says, when it comes to the implementation of IFRS 17, the insurance industry expects to implement the IFRS 17 that will bring with it key changes in the industry.
This means standards will ensure consistency in financial reporting by industry players. The enforcement will mean that insurance companies will now have to re-look at their valuation models, the capability of current systems, and assess the changes to be made to ensure compliance with this new standard.
“The most prominent among these changes is the fact that insurance companies will require more data to meet the new reporting requirements. This represents a big opportunity for the industry to grow its data analytics capability, enable industry players to analyse data to discover existing trends in business data and draw conclusions that inform future decision-making,” he elucidates.
He adds: “Following the promulgation of the IFRS 17 in May 2017, IRA convened an exercise to ensure that the entire Insurance Industry in Uganda is prepared for implementation of the standard and proposes that a standardised approach should be adopted across the Insurance Industry in Uganda.”
He notes that with requirements for increased data capacity and systems to match within the framework of IFRS 17, insurance companies will have a store of valuable information at their disposal, which is very relevant in the running and growth of the insurance business.
He says: “Through data analytics, insurance companies will assess products based on factual historical data, giving them an opportunity to move away from the one-size-fits-all approach and instead tailor-make insurance contracts to the insured’s needs.”
With increased comparability and results transparency being at the fore of IFRS 17, the competition for market share in the insurance sector will increase, which will further support sector growth.
Role in IFRS 17 implementation
Certified Public Accountant Nicholus Mushabenta, an IFRS 17 guru at BDO East Africa says accountants will have the biggest role in implementing the IFRS 17 through financial reporting, analysis and interpretation of financial information.
“Actuaries and information technology (IT) specialists are highly needed in IFRS 17 implementation, however, they must depend on the accountant to interpret IFRS 17 requirements. IFRS 17 is expected to have a pervasive impact across the architecture requirements of the IT systems with need for a customised calculation engine and the finance functional system which covers the underwriting, claims, actuarial, and financial reporting modules,” Mushabenta says.