The post COVID-19 landscape of Insurance Tax: Introduction
July 20, 2020
COVID-19 has done more to raise public awareness of the role of insurers than possibly any other event in our lifetimes. But it has also shone a light on the limitations of policy coverage, and customer understanding of these limitations, particularly regarding those risks that no individual or business had envisaged.
More generally, the pandemic has resulted in huge changes to the way both individuals and businesses operate. There has been a significant impact on people personally, in their ability to travel and socialise with family and friends, and professionally, being compelled to work from home with a transition to virtual meetings and restrictions placed on international travel. Organisations around the globe have been affected by various government measures to protect their citizens and economies, although this has been mitigated by government support where possible, and also by changes in consumer attitudes and behaviours, such as the shift to digital and the need for flexibility in services.
This disruption to the economy will continue to evolve as countries begin to emerge from the pandemic, as both domestic and global government agendas drive change. We expect that this will lead to more social and economic changes, further developing the way in which we work and live.
It seems inevitable that we will not simply be returning to the status quo of before. The changes have resulted in a paradigm shift in understanding what is possible to achieve remotely, it has highlighted potential for technological improvements, and emphasised the importance of governmental and societal coordination. In the face of such uncertainty, it is crucial that management consider ways in which to continue to improve and emerge as strong, if not stronger, post-crisis and maximise the potential that change offers going forwards.
In this series of blogs and articles, we will consider how insurers should be looking to add value in the coming months and years. We will look in detail at the following issues:
- Workforce and location - It has now been proven that working remotely at scale is achievable, and, for many employees, desirable on a more full time and sustained basis. This vastly increases the talent pool available while demands that employers grant increased flexibility to employees. These changes may also accelerate plans to reduce real estate footprint and consideration of alternative office locations.
- Reputation - The crisis has increased the focus on the societal impact of companies - from those that turned to making hand gel or masks, enhancing their reputations, to those who took advantage of furlough arrangements and had to change their positions in light of public pressure. Companies will need to maintain or repair their images going forward. The demand for a green recovery, aligning with environmental, social and governance (ESG), and societal expectations of increased transparency should shape how companies respond.
- Tax policy - Government initiatives implemented in response to the crisis have come at a cost and governments worldwide are expected to be under pressure in the coming years to reduce fast-growing deficits. This is expected to sharpen focus on both new and existing unilateral and multilateral tax reform measures. We will consider how businesses can prepare for these.
- Legal and regulatory - We will look beyond COVID-19 towards the looming Brexit deadline. What potential impacts will that have for companies, and how will the future relationship with Europe affect day-to-day business? In a climate where insurance coverage issues are high profile, will insurers face increased scrutiny from regulators going forwards?
- Product innovation - Consumers have become more discerning buyers of insurance, and the demand for pay per use policies is growing, particularly for motor and health insurance. Customers have higher expectations for tailored solutions, enabled by artificial intelligence (AI). The gig economy has grown massively and has particularly suffered through lockdown. Can insurance find a way to work for them? Will we see major disruption from new entrants taking advantage of a more advanced digital age, unprecedented amounts of data and direct access to consumers?
- Deals outlook - Are we looking at a ‘deals-driven’ recovery, fuelled by significant amounts of uninvested capital and a buoyant run-off market?
The potential for change and development for those operating in the insurance industry is vast and a successful business will include a motivated, talented and productive workforce together with a cleaner balance sheet, an enhanced reputation and a slicker group structure, all of which will be able to provide new, innovative and enhanced products to customers at increasingly better margins.
As a tax partner, I have an eye on the tax impacts of these changes and how a tax function can add value and contribute meaningfully to future planning and discussions and that is where this series will focus. It is also important to take a step back and look holistically at the bigger picture, and the way in which tax functions can support businesses to ensure that insurers can thrive going forwards.