This blog was last updated on January 11, 2024
Working with intermediaries in insurance is common practice. And using the knowledge and resources of an intermediary can deliver additional sales for an insurer without the need for internal resources.
There are many benefits of working with a broker. Not only do they generate additional sales for the insurer, but they’ll also liaise with customers, deal with renewals and accelerate client onboarding.
A broker’s focus is on generating additional policyholders for insurers. The broker is often responsible for assigning the premium and risk covered and so thereby has a significant impact on the insurer’s profitability and bottom line. This is where having access to accurate tax rates becomes key.
The relationship between the broker and insurer can be extremely successful, providing policy and tax reporting can be successfully completed by the insurer.
But herein lies the problem.
The granular detail required by tax authorities for insurers to comply with complex insurance premium tax reporting is increasing and will continue to do so.
Tax authorities are asking for more filing information to increase efficiency, close tax gaps and reduce fraud. Insurers need to bear this in mind when working with intermediaries to ensure they have the correct information required to comply with filing requirements especially as the responsibility ultimately lies with the insurer.
Mind the gap
Sovos helps many insurers correctly calculate, report and file their insurance premium tax and parafiscal charges to comply with the relevant authority’s requirements. An issue we often come across is at reporting time when insurers don’t always have all the information they need to file and then have to liaise with brokers and other intermediaries, such as insurance agents, to complete the gaps.
As far as the broker is concerned, they’ve done their job once they’ve provided a policyholder’s details to the insurer. This is true to an extent, but what’s important to remember is that although brokers work with insurers, the responsibility for filing lies with the insurance company.
Having an additional link in the chain not only slows the process down but can potentially cause gaps in data and information leading to fines if taxes aren’t filed promptly and correctly adding to the challenges when filing across multiple jurisdictions to meet varying deadlines.
The detail needed to process a policy can vary vastly to that required by a tax authority for processing. Insurers could find they need to contact the broker for additional information for filing. A broker will have their own underwriting authority and processes and it’s possible in some cases that the information required either hasn’t been recorded or is difficult to retrieve.
We recommend discussing the information required for filing ahead of time with any brokers or intermediaries to make working with third parties more efficient and a simpler process.
Sovos IPT can help not only insurers but also brokers in making sure that the right information is collected easing some of the complexities of IPT compliance by adopting an automated approach.
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