Page 37 - The Insurance Times August 2022

Introduction insurance contracts, including long-term nature, current
practices / methods in product designing like clubbing non-
International Financial Reporting Standards and
insurance elements with insurance, dominant role of
International Accounting Standards with their adaptations
estimates in evaluation of insurance contract/s and
like Ind-ASs, are mandatory (though a few provisions of
possibility of contract/s being onerous are some important
these standards may be optional) guidelines for preparation
factors primarily behind the development of these new
and presentation of financial statements. The standards
concepts and models. The Standard also attempts to align
deal with the contents and formats of financial reporting.
the accounting and reporting of insurance contracts with
The purpose of these guidelines is to ensure transparent,
accounting and reporting of transactions in other industries.
consistent, faithful, true and fair reporting of financial
performance and financial position. They also ensure that
such financial statements remain comparable. The universe A. Few new concepts
of financial reporting is so diverse, that one set of common 1. Un-bundling of Bundled Products
prescriptions for all entities will not suffice. In addition to
A bundled product is one, which is made up of multiple
the common prescriptions relevant to all entities, because
components, each one being distinct in nature from the
of the peculiarities of the transactions of certain sectors,
other component. The economic characteristics of one
some prescriptions have to be sector specific. Insurance is
component are different from the economic characteristics
one such area, where specific prescriptions are required. of other component/s. Each component is capable / has
International Financial Reporting Standard 17 is an attempt
potential of being offered as a separate / independent
to fullfill this need.
product. However, it has been the practice (Marketing
strategy) in insurance, particularly in life insurance to offer
Some notable / main features of International
bundled products. Unit Linked Insurance Policy (ULIP), a
Financial Reporting Standard 17 - Insurance bundle of insurance and investment is the best example of
Contracts are - bundling in life insurance. Offering roadside assistance
services along with insurance services is an example of
1. It is a transaction / contract based standard (as against
bundling in non-life insurance.
some entity based ones).
2. It has introduced several new concepts (if not new,
Package polices (Householder's policy, Shopkeeper's policy,
substantially refined) like - Contractual Service Margin,
Banker's Blanket policy, Jewellers Block policy) in non-life
Un-bundling, Portfolios and Groups as units of
insurance are also results of some kind of bundling,
measurement. It has also introduced new Measurement
representing bundling of different insurance components as
Models - General Measurement Model, Variable Fee
against bundling of non insurance component with
Approach and Premium Allocation Approach.
insurance observed in previous examples. Subjecting
3. Two categories of contracts ( Normally found in life different components of a bundled products to same
segment) have been singled-out for special treatment accounting treatments, particularly when the cash flow
1) Insurance contracts with direct participation behaviour of each component are different, will be antithetic
features, and 2) Investment contracts with to the idea of true and faithful presentation. The results of
discretionary participation features, where the entity
also issues insurance contracts. In addition special
provisions have been made for reinsurance contracts
held.
4. IFRS 17 replaces IFRS 4 which was earlier introduced
as a temporary / transitory measure.
International Financial Reporting Standard 17 - Insurance
Contracts, represents a comprehensive review of accounting
and reporting of insurance contracts. Financial service is a
class in itself, different from other services. Though insurance
is a financial service, it is quite different from other financial
services and in insurance, life and non-life segments are
worlds apart. Complexity, diversity and uniqueness of

The Insurance Times, August 2022 37