Navigating Insurance’s Digital Highway

Christophe Bourdaire
September 16, 2020

From underwriting to reporting, the insurance industry is having to adjust and by choice or imposed, is embracing the digital evolution of its practices. On the reporting front, more tax authorities are forcing insurance companies to tailor their internal processes by jurisdiction, directly impacting the collection of information at the underwriting stage. Digitized services continue to rise making it even harder for insurers to find the most tailored solution to meet their needs.

Tax filings used as pre audit tool

As we’ve seen in recent years, tax authorities are moving all their tax filing processes online. Insurance premium tax (IPT), is following the trend and, within the European Union for instance, paper filing is no longer the norm. Some tax authorities have opted for simplified online processes, like in the UK, where IPT is filed on a consolidated basis and the recent feedback from HMRC on its IPT Call for Evidence suggests this way of filing will remain. Other jurisdictions, such as Portugal, have taken the opposite approach by asking insurance companies to provide as much detail as possible on their transactions and policies. This adds administrative burden to the insurance market but should facilitate the audit work of tax authorities. Indeed, with all the tax information collected upfront, tax authorities should have a fair amount of data to allow them to track the level of activities not only of insurers but also of insureds. This transactional approach might also initiate the transition to the next compliance challenge: e-invoicing.

The challenge of e-invoicing

While IPT filing is moving online, other taxes such as VAT have already engaged in the next phase of their digital journey: e-invoicing. The number of tax authorities implementing so-called clearance systems, where invoices are submitted to the tax authorities for validation before being issued to the buyer, is fast increasing. Whilst clearance systems are common in Latin America, more regions are waking up to the benefits they present to tax authorities in closing tax gaps and increasing efficiency including, for example, Italy in 2019 and Turkey this year. For insurance, the question is: if tax authorities extend e-invoicing clearance systems to insurance premiums, will insurance companies be able to comply? Such an obligation could probably be met for domestic companies selling private insurance such as motor or home insurance in the short term.  For insurers or captives writing global programs, it would be far more challenging and require extensive knowledge of all tax jurisdictions and in particular the e-invoicing formats accepted by the different tax authorities. If this is what’s coming next, the insurance industry should start to prepare and embrace the change to their advantage rather than feel it’s imposed.

The limit of digitization

With digitization on everybody’s mind, the temptation to invest in sophisticated software solutions is at its peak. The insurance industry is often singled out for its outdated software infrastructure, which makes it a key target for digitized services providers. But this can result in numerous fragmented software solutions being implemented in-house, complicating internal processes and causing inefficiency when complying with tax authorities’ reporting requirements. A single software solution to meet all needs from client and claims management to tax filing obligations, remains a fantasy at the moment. It’s therefore paramount that insurance companies adopt a digital strategy across departments and opt for the most agile and flexible software solutions that can not only meet today’s compliance needs but also tomorrow’s evolutions.

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Christophe Bourdaire

Senior Regulatory Specialist, Regulatory Analysis. Christophe joined Sovos FiscalReps in 2011 and has been managing the IPT compliance process for a portfolio of captives and French speaking clients. Based in France, he focuses on the development of the global IPT content and technology offering. Christophe completed a degree (certificate) in Journalism at Ecole Nouvelles in Nice, France. He is a native French speaker, and also speaks fluent Spanish.
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