Slowly but surely, so-called insurtech companies are increasing their share of the insurance market. After a record year in 2018 that saw USD 4.15 billion invested into insurtech companies, 2019 is likely to surpass this achievement with USD 1.42 billion already invested during the first quarter. While official announcements of partnerships with long lasting classic insurance companies are making the headlines, it’s time to pause and address some of the key IPT implications for these new entrants to the insurance market.
So, what exactly is an insurtech company?
Insurtech companies are usually presented as technology companies operating in the field of insurance. They can cover a wide range of services from risk assessment to claims management. Among the services offered, some will also act as insurance intermediaries. Their promise is to deliver highly tailored and personalised services through products such as pay-as-you-drive insurance, and pay-as-you-rent insurance, but they also specialise in extended warranties.
With more insurance products being sold through these online platforms, it is highly likely that private insurance, once the protected land of domestic insurers, will be sold by non-domestic insurers.
For insurtech companies as well as traditional insurance companies, management of insurance premium tax (IPT) should be a priority in the building of their relationship.
Here are some of the key points to consider in order to manage IPT in a compliant manner:
- Responsibility for the IPT filing
As the insurtech company is most of the time acting on behalf of the insurance company, the insurance company is very likely to be the party liable for the filing and payment of the IPT. Reporting processes, including for IPT, should be set up especially when the insurtech company writes cross-border insurance as is the case in Europe under the Freedom of Services regime. In addition, knowledge should be kept up to date as being such a fragmented tax, IPT can be complex and the rates across regions are regularly subject to change.
- Country specifics
In Europe, IPT legislations have not been built in a standard way. This is partly because each insurance market has its own specificities. In Belgium for instance, hospitalisation insurance is normally sold through a standard contract that a non-Belgian insurer stakeholder might not be aware of. Mastering all markets’ specificities and keeping up to date with them when changes are made can be challenging especially when insurance is not sold locally.
- Insurer borne taxes
Several territories apply insurer borne taxes or parafiscal charges on insurance premiums. These need to be identified early enough to ensure that profit margins are not affected. In France for instance, the obligation to collect a CatNat premium on property insurance contracts also triggers the application of a 12% insurer borne tax on this premium.
- Rates model
Premium taxes are usually applied as a percentage of the premium, but specific rates models like fixed fees can become problematic when they are applied on small premiums, which is the case for pay-as-you-go insurance. The cost of the tax could end up being higher than the cost of the insurance premium itself.
- New risks
The new insurance model developed by insurtech companies is developing at the same time that new risks are emerging. Extended warranties proposed on e-commerce platforms for instance can be tailored based on a large number of parameters making the classification of the risk more complex and as a consequence the application of premium taxes more difficult.
With the number of insurtech companies set to rise as they help leading insurers with their digital strategies, new and existing players need to be aware of tax compliance obligations across territories and stay on top of what it takes to be IPT compliant.