ZIMBABWE's accounting professionals have warned that insurance product pricing and business models may change with the adoption of International Financial Reporting Standard (IFRS 17), a global accounting standard for insurance contract accounting and reporting.
For Zimbabwe’s insurance industry, the adoption of IFRS 17 is expected to have a significant impact as insurers will need to invest in new systems, processes, and staff training to comply with the new requirements, according to accountants.
Moreover, there may also be a need to re-evaluate product pricing and business models to ensure profitability under the new accounting framework with increased transparency and comparability required by IFRS 17.
In an interview, accounting firm Krenson Zimbabwe’s partner Tinashe Murerekwa said IFRS 17 redefined reporting that was done under IFRS 4 and brought significant changes to ICT systems supporting relevant entities.
“IFRS 17 has made extensive changes to accounting for insurance contracts from its predecessor IFRS 4,” he said.
“The main changes are in the following areas; revenue recognition, initial and subsequent measurement of insurance and reinsurance contracts, presentation and disclosure of financial statements, and the scope extends beyond insurance companies to also entities that issue contracts with insurance risk.”
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According to Murerekwa, the implementation of IFRS 17 presents both challenges and opportunities for Zimbabwe’s insurers as they adapt to the new global accounting standard whilst trying to remain competitive.
He noted that the implementation of the standard was work in progress, which has taken close to 20 years of comprehension.
Some of the challenges it presents include its complexity, required upgrade of systems, and disclosure of retrospective data.
“To get some context, the standard started being developed in 1997 by the International Accounting Standards Board (IASB), and an interim standard IFRS 4 was issued in 2004. The actual standard was then issued in 2017, meaning it took 20 years to develop the standard,” Murerekwa explained.
“The implementation date after issuance in 2017 was moved several times due to the inability of preparers to first comprehend and then make necessary changes to supporting infrastructure, eventually becoming effective in 2023, six years after issuance. Indeed, this is a complex standard.”
He also noted that much progress had been made since the beginning of trial runs in the third quarter (Q3) of 2022.
“Ipec (Insurance and Pensions Commission), jointly with PAAB (Public Accountants and Auditors Board) asked the market to start preparing dry run reports in Q3 of 2022 in preparation for adoption,” Murerekwa said.
“Progress has been made since then. However, due to requirements in systems overhaul and retrospective data, it is very much a work in progress.
“Ipec has had to move reporting deadlines for the financial period ending 31 December 2023 from March 2024 to June 2024.”
He said IFRS 17 introduced comprehensive disclosure requirements aimed at providing investors and stakeholders with better insight into an insurer’s insurance contracts, financial position, performance, and risk exposure.
“Compliance with these disclosure requirements enhances transparency and helps build trust and confidence among investors, regulators, and other stakeholders,” Murerekwa added.