Nowadays it becomes more and more difficult for insurance companies to navigate through the jungle of different legislation. The legal landscape is constantly evolving and we see more and more scrutiny at the level of the regulator and the tax authorities. It is crucial, even more than before, that insurers are able to prove their compliance with their legal, regulatory and tax obligations. 

Depending on the size of their organisation, insurers might decide to deal with non-core business operations like finance, accounting, compliance and tax internally. However, this “in house” solution requires a certain level of expertise at the first and second level of defense. Insurers have to ensure that concerned employees are trained on a regular basis and that sufficient controls are implemented to exercise oversight and identify any risks of non-compliance. In this respect, insurers are facing the practical challenge that specific topics such as FATCA, CRS or AML tax are not allocated to dedicated departments. For example, in general, insurers do not have their own tax department, but rather the tax function is often allocated to the compliance function, which is expected to be familiar with all relevant regulatory and tax regulations and needs to carry a heavy burden of responsibility. In addition, it is very difficult to stay up-to-date with all relevant regulations and not  miss any change or new obligation. 

One alternative to the full in-house solution consists in the engagement of external experts, in the form of tax and regulatory hotlines to timely identify relevant upcoming changes. In addition, this approach allows for access to experts and knowledge on market developments and to validate positions with respect to more complex cases. 

The second alternative would be the full outsourcing of the relevant functions in the form of managed services. And if we talk about “outsourcing” today, this is not the same as the “outsourcing” we were talking about a few years ago. Technology has shown us, especially since Covid-19 entered into your life, how to overcome physical distance. Even if certain services are outsourced, it still feels as if you would be in the same room as your service provider. The use of collaborative online platforms now allows the ability to share information in a secure environment and communicate in a timely manner. 

Apart from cost savings and freeing up resources, there are some additional benefits that might be less obvious at  first glance. The released resources can focus on the essentials, i.e. their core business and would only need to ensure oversight over the delegated functions. In addition, managed services allow access to innovative technologies (without any investment costs) that insurers do not have in-house and can help to gain a competitive advantage. In practice, there are still too many manual processes that increase not only costs, but also the risk of mistakes and demotivation at the level of the employees that spend too much time with repetitive, non-fulfilling tasks. Managed services provide access to emerging technologies and data management tools with a focus on automation, data management and analysis. In addition, insurers have access to specialists that have the relevant know-how, skills, industry expertise and experience in multiple disciplines across the insurance market. Especially, if insurers are operating globally, managed services allow them to consider multi-jurisdictional and cross-border obligations and ensure that a consistent approach is applied within the group. 

The use of managed services helps to reduce the risk of non-compliance (due to the high turnover of skilled resources, lack of knowledge, manual mistakes or lack of sufficient controls), related financial penalties (issued by the regulator or the tax authorities) and also reputational risks. In addition, managed services platforms provide for an audit trail of all steps and actions performed to be compliant. They also provide dashboards to enable insurers to exercise their oversight responsibility and at the same time, they provide information and documentation that might be helpful to respond to specific questions raised by the regulator or tax authorities. 

Finally, the use of the same managed service provider for several services might increase the efficiency and optimise the overall process, because in this case, there would be only one centralised platform serving as a single entry point to collect all relevant data. Certain data might be used for different services but would be provided only once.

Especially in the continuously changing business environment where it is hard to find resources with the relevant skills and where there is more and more pressure from the regulator and tax authorities, managed services represent an attractive alternative and enable insurers to react flexibly to changes at any time. Managed services have already been the preferred option for many insurers and this trend will continue in a competitive environment. 

 

Source/Picture: PwC Luxembourg


Publié le 19 avril 2022