The digitalization of insurance tax
Thanks to significant advancements in insurance technology, there have been quite a few digital changes within the insurance sector in recent years. Along with the onset of the COVID-19 pandemic, these updates have created a considerable shake-up in the industry. These advancements will also have a direct effect on tax compliance as tax authorities aim to find stability.
But how are new additions to the market and the desire to digitalize insurance tax affecting the industry? As it turns out, the move to digital can be beneficial to you.
If you’d like more guidance on this complex topic, our insurance tax experts have authored a downloadable guide, The Digitalisation of the Insurance Tax Landscape.
What’s driving the digital transformation of insurance tax?
Not too long ago, insurance was an industry practically untouched by technological advancements. But now, modern tech is paving the way for a more user-friendly and efficient experience. In fact, you’ll even notice non-insurance experts getting into the game, such as Tesla.
Without a doubt, Tesla has changed the face of car manufacturing with its previously unheard of ambitions. And in 2020, the company expanded its reach into the auto insurance sector in some states. But why?
For starters, Tesla has an abundance of real-time data from its drivers’ behavior to the performance of its vehicle technology, including camera recordings and sensor readings. Therefore, Tesla can accurately estimate accident risk and potential repair costs, which gives the company a substantial competitive edge. It also eliminates the need for Tesla to base insurance rates on age or gender, unlike traditional methods.
In addition, Tesla is offering insurance because the industry is changing so 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 entering the industry and disrupting the sector makes sense.
While these new additions might not significantly impact the insurance industry in the short term, incumbent insurers resistant to change could face challenges — or even displacement from the market entirely — as time goes on. Also, as the sector experiences more data digitalization, tax authorities will seek out new ways to remain relevant through their own transformation.
The positive effects of data digitalization on the industry
The key to any digital transformation project is complete, accurate, and timely data that can support and connect digital processes. Most insurers who intend to modernize their business will focus on the quality of this data as it makes all the difference between an automated, immediate process and a manual process that’s unnecessarily time-consuming.
With such accurate and complete data, these insurers will be able to reduce the reporting burden on managing agents by automating reporting requirements and easily meeting local tax and financial requirements.
Over time, more insurers will likely make the move to a data-driven approach to managing insurance. Since the information is collected in near-real time and stored in a structured, accessible manner, the data grants tax authorities access to a single source of truth. With this enhanced transparency and visibility, tax authorities can achieve their goal of improving tax compliance.
Therefore, it’s extremely likely that more jurisdictions will reap the benefits of a digitalized insurance tax landscape in the future. Some countries, like Ireland, Germany, and Luxembourg, are already beginning their insurance premium tax transformation journeys, starting with e-filing.
The inevitability of insurance tax digitalization
It’s no secret the insurance industry has been slow to digitalize. Naturally risk-averse, many insurance professionals still prefer traditional systems because they work. However, the old systems’ place in the future of nearly every industry is coming to an end. Professionals are constantly discovering the time and cost-saving benefits of going digital.
More and more tax authorities are requiring insurers to submit extensive data to their electronic portals for insurance premium taxes. Insurers will therefore need to prioritize upgrading their systems in order to remain compliant and reduce the stress associated with filing taxes. Although successful financial transformation requires an investment, the long-term business benefits far outweigh the initial expenses.
The top five benefits of insurance tax digitalization
1. Compliance and risk avoidance
It’s practically impossible to stay compliant with new rules and regulations surrounding tax without the proper technology. A digitalized platform can handle the ins and outs of cross-border, global compliance while simultaneously simplifying the reporting process. Furthermore, a compliance-first solution will benefit the ever-evolving regulatory aim to remove any risk.
2. Automation and efficiency
The main benefit of digitalizing any business process is that it saves time and frees up resources. Automation tends to eliminate tedious manual tasks. It’s also inevitable stand-alone systems like tax calculators that don’t seamlessly integrate with quote and bind processes will become irrelevant.
3. Cost savings
Although it may be necessary to invest more in the early stages of transformation, it will save money in the long run by reducing the risk of late payment or filing fees, creating a more productive finance and operations team.
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 digitalization. Insurers will need to take a proactive stance now to ensure they have their finger on the pulse of any insurance tax developments and to grow their business.
5. Audit and transparency
A key benefit of any insurance premium tax compliance solution is the high quality of the data it stores. Data is collected in near-real time, organized, and stored in a way that’s accessible, which removes most of the stress from audits. In comparison, by relying on spreadsheets, insurers risk lost or inaccurate data, which could be more costly than any investment in digitalization.
Download our guide for more insights
Digital transformation is taking the insurance industry by storm, and tax authorities are noticing. Therefore, while digitalization isn’t currently mandatory for insurers, it may soon become a compliance requirement.
To help prepare you for the future of the insurance tax landscape, our experts have compiled their core insights into a guide. When you’re ready to learn more about the digital trends driving the future of the industry, download The Digitalisation of the Insurance Tax Landscape.
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