Daniela Dinkova, compliance services supervisor and leader of the captives practice, Sovos
Captive insurers participate in the largest and most complex multinational insurance programmes, but often lack the operational resources and technology typically found at commercial insurers to support compliance and programme management, says Daniela Dinkova at Sovos.
Governments across the world are taking steps to close tax gaps by introducing a wave of mandates, including real-time VAT reporting already introduced in Italy, Hungary and Spain.
Tax authorities across Europe continue to digitise and want greater visibility into an insurer’s liabilities, whatever its organisational structure may be. This includes recently introduced mandatory changes by the Consorcio de Compensación de Seguros in Spain and upcoming alterations to stamp duty reporting in Portugal.
“Digital filing provides captives with a comprehensive and easily accessible audit trail—a vital component of cross-border reporting and risk management.”
These new filing processes require an insurer to capture, validate and process a significant level of detail for tax remediation. Manually processing all this data is labour-intensive and has higher potential for errors—especially if a captive operates across multiple jurisdictions, all requiring different filing and reporting processes.
This is why many captives are exploring insurance technologies to assist with storing and extracting the detailed data required for reporting.
The devil in the detail
Insurance technology—insurtech—is evolving all the time. Many of the latest offerings focus on automation that accelerates repetitive workflows and capabilities, while improving the accuracy of the more detail-oriented elements of filing returns.
For example, mapping products to the corresponding risk insured and tax application is a time-consuming task. Insurtech can increase efficiency by automating this process and ensuring accurate tax rates are applied at the underwriting stage. This leaves people to focus on the most complex of classifications.
With tax rate updates occurring regularly across multiple jurisdictions, it’s important to ensure the most accurate information is applied to reporting. For captives filing annually, researching and manually updating rates can take significant time, money and resource.
Software can help simplify complex tax calculations based on a captive’s specific products and the type of risk covered. Accurate insurance tax and parafiscal charges can be built into the premium allocations to protect profit margins, and technology streamlines this process.
Accurate and compliant invoicing
Each tax authority has its own specific requirements and technology for compliant filing. Each is also requesting more granular reporting, a trend that will undoubtedly continue with other indirect taxes, such as VAT, and likely apply to the insurance premium tax in the future.
This is where technology can help, providing and storing the necessary data required to ensure compliance but also improving efficiency. Uploading data for reporting and settlement to the various tax authorities takes considerable time, especially as some authorities do not allow for cancellations after submission. You need to be accurate in every instance.
Using workflow technology ensures that filing moves forward to schedule, premium tax data is available for auditing purposes, and reporting is submitted by the required deadlines. It also avoids duplicate reporting and eradicates miscommunication that could delay filings or cause an error that leads to a financial penalty.
Technology helps to store information in a single location, centralising intelligence and ensuring past records are easily recalled in the future. This is particularly important for renewal information that is reviewed, updated and used by captives year after year.
Digital filing provides captives with a comprehensive and easily accessible audit trail—a vital component of cross-border reporting and risk management.
Is insurtech worth the investment?
Despite organisations pushing forward with digital transformation, captives don’t always see insurance software investment as a priority. Understandably, it can appear a significant cost for a solution that is used only once a year (if filing is undertaken annually).
The prospect of integrating new technology can also feel like a significant project for a smaller entity. A spreadsheet may appear to be an adequate option but with such sensitive information, data security is an undervalued benefit of insurance software.
Insurtech can help captives stay ahead of complex and fast-changing government regulations, providing them with the freedom to focus on strategy and innovation.
Many captives are unable to justify the technology spend outright so they look to consultants to help with reporting—benefiting from the technology they use without having to invest the time and budget internally themselves. This is the happy medium for many captives.
With all organisations looking to improve data security, compliance, efficiency and filing accuracy, now could be the time to explore the wealth of technologies available.
Technology may be viewed as assisting and improving existing processes and providing benefits in the short and long term, rather than as a complicated addition to master.
After all, tax filing is only going to become more complicated as time goes on.
Daniela Dinkova is the compliance services supervisor and leader of the captives practice at Sovos. She can be contacted at: firstname.lastname@example.org
Daniela Dinkova, Sovos