The Complexities for Insurers When Writing Insurance Through Third Parties

There are many different avenues an insurer can use to write insurance business. These include brokers, intermediaries and managing agents to name a few. When using a third party and looking at the rules around insurance premium tax (IPT) calculation and submission by each of the tax authorities, it can be difficult to know how to report correctly.

With so many different underwriting systems being used across the market, being able to capture the level of information needed is almost an impossible task. Then when this information is gathered, the completeness overall can be questionable.

Three key questions

There are three key questions, an insurer will need to answer:

1. Has all the policy data been recorded correctly?

2. Has all the information been collected which is needed for submission?

3. Has the cash for the policy premium been received?

Knowing when the tax needs to be paid

The last question, “has the cash been received?” causes confusion. Cash received is a common tax point used by tax authorities. However, the definition is often when the cash has been received on or on behalf of the insurer. This means if the broker, intermediary or managing agent receives payment for the policy on an insurer’s behalf then the tax is then due to be paid to the relevant tax authorities.

Many brokers, intermediaries and managing agents work on either 60 or 90 day payment terms meaning the tax would be due to the tax authorities but the insurer hasn’t received it. This leaves an insurer out of pocket for potentially, up to three months whilst they wait for payment and, if not carefully managed, can lead to cash flow challenges.

Data collection

Another challenge surrounds data collection. Being able to capture all the necessary fields for reporting in the ever-evolving requirements set by tax authorities is crucial especially when this information is being captured by a third part. And with the recent movements in Spanish and Portuguese reporting requiring more granular detail, we only believe there will be more to come. The additional fields, such as whether it’s an instalment, equal instalments, type of policy (more so relating to Spain), reason for a negative or even down to reporting of the tax point dates require system changes so that the data is collected up front – if it’s not, this can cause significant headaches further down the reporting process. All this information is giving the tax authorities greater visibility of the IPT and relevant parafiscal charges that would not have been visible before now. The question for insurers who are ultimately responsible is will third parties really know what to request to fulfil these obligations?

Until now, market practice has always played a part in how some insurers act. But with the changes tax authorities across the world are making to increase the efficiency of taxation, this will make it more difficult for insurers to make commercial, market-based decisions when reporting. Changes imposed are often with little warning or consideration for system amendments or limitations.

Keeping up with IPT and parafiscal reporting requirements is challenging enough but being able to comply when insurance business is written through a third party only adds to the complexity. Using the right software can overcome these issues by ensuring all fields needed for submissions are captured.