Insurance tax is going digital
The proliferation of insurtech and disruptive new players have been forcing digital change within the insurance sector in recent years. These aspects, combined with the unanticipated COVID-19 catalyst, have created the perfect storm for industry-wide transformation — which will have a knock-on effect on compliance as tax authorities aim to keep pace.
In this blog, learn how new entrants to the market and the authorities’ desire to digitalise insurance tax are driving the digital transformation of insurance. Plus, discover how the move to digital can benefit you.
If you need further guidance on this complex subject matter, our insurance tax experts have authored a guide on the topic – You can download it here: “The Digitalisation of the Insurance Tax Landscape".
New entrants driving the digital transformation of Insurance Tax
Traditionally, insurance was an area untouched by the advancements of tech — a manual and time-intensive back-office routine. Now, modern tech is paving the way for a more user-friendly, efficient experience. Non-insurance experts are even getting into the game, including the electric vehicle giant Tesla.
Tesla undoubtedly changed the face of car manufacturing with its wild ambitions. However, in 2020, Tesla expanded its reach into the auto insurance sector in certain states in America. But why?
For one thing, Tesla holds a treasure trove of real-time data from its drivers’ behaviour to the performance of its vehicle technology, including camera recordings and sensor readings. Thus, Tesla can accurately estimate the risk of accidents and repair costs, giving the company a significant competitive edge.
In addition, Tesla is offering insurance because the sector is changing dramatically and rapidly. The work of the insurer is shifting from local human expert underwriters to automation driven by big data and AI. A tech company disrupting the sector fits the trajectory for change perfectly.
Although the uptick of new, tech-driven entrants will not significantly impact the insurance sector in the short-term, incumbent insurers resistant to change could face margin erosion or even displacement from the market as time goes on. Not only that, but as the sector experiences more data digitisation, tax authorities will seek new ways of keeping pace through their own transformation — which is exactly what happened to the VAT regimes of many countries.
The impact of data digitisation on insurance tax compliance
The key to any digital transformation project is complete, accurate and timely data that can support and connect digital processes. Most insurers who aim to future-proof their business will focus on the quality of this data, as it makes all the difference between an automated, immediate process and a manual, time-consuming one.
With accurate and complete data, insurers will be able to reduce the reporting burden on managing agents by automating the reporting requirements to meet local regulatory, tax and financial requirements.
Over time, more insurers will make the move to a data-driven approach in managing insurance. But, just as with the VAT regime, tax authorities will need to transform in line with industry advancements.
The data affords tax authorities a single source of truth, as the information is collected in near-real-time and stored in a structured, accessible manner. Thanks to this enriched transparency and visibility, tax authorities can achieve their goal of improving tax compliance.
It’s therefore highly likely that more jurisdictions will reap the benefits of a digitalised insurance tax landscape in the future. Some countries, such as Luxembourg, Germany and Ireland, are already beginning their IPT (insurance premium tax) transformation journey, starting with e-filing.
Five benefits of the Digitalisation of Insurance Tax
It’s no secret that the insurance industry has been slow to digitalise. As naturally risk-averse professionals, many still depend on legacy systems to file insurance tax because it works — for now. However, legacy technologies are called such because their place in the future of any industry is coming to an end, as more people discover the time and cost-saving benefits of going digital.
More and more tax authorities require insurers to submit extensive data to their electronic portals for IPT. Insurers will therefore need to prioritise upgrading their systems to stay compliant and reduce the stress associated with filing taxes. Although successful finance transformation calls for an investment, the long-term business benefits far outweigh the initial expense:
1. Compliance and Risk Avoidance
It’s practically impossible to stay compliant with new rules and regulations surrounding tax without the proper technology. A robust platform can handle the ins and outs of cross-business, global compliance while simultaneously simplifying the reporting process. Not only that, but a compliance-first solution will keep abreast of the ever-evolving regulatory landscape to remove any risk.
2. Automation and Efficiency
The main benefit of digitalising any processes in a business is saving time and freeing up resources by eliminating tedious, manual tasks through automation. Stand-alone systems like tax calculators that do not integrate with the quote and bind processes seamlessly will become redundant in the next few years — it’s inevitable.
3. Cost savings
Although it may be necessary to set aside a budget in the early stages of transformation, it will save costs down the line by reducing the risk of late payment/filing fees, creating a more productive finance and operations team whilst streamlining processes through automation.
4. Business Growth and the Ability to Scale
Digital transformation is gaining momentum, and international tax rules are being reformed to cope with the increasing demand for digitalisation. Insurers will need to take a proactive stance now to ensure they’re on the pulse of any insurance tax developments and grow their business. They need only look at the VAT situation to see why insurance tax digitalisation is needed now.
5. Audit and Transparency
A key benefit of any IPT compliance solution is the quality of the data it stores. Data is collected in near-real-time, organised, structured and stored in a way that’s accessible, which takes the bulk of the stress out of audits. In contrast, by relying on spreadsheets, insurers risk lost or inaccurate data, which could be more costly than any investment in digitalisation.
Download our guide for more insights into the Digitalisation of Insurance Tax
Digital transformation is sweeping across the insurance industry, and tax authorities are taking note. Therefore, while digitalisation is currently recommended for insurers, it may soon become a compliance requirement.
To help prepare you for the future of the insurance tax landscape, our experts have gathered core insights into a guide. In here we provide guidance for those grappling with the fundamentals of IPT and other so-called “parafiscal tax” compliance and those who want to learn more about the digital trends driving its future.
Download the Digitalisation of the Insurance Tax Landscape guide.
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