About two-thirds of insurance chief executive officers from 37 countries taking part in a recent survey regard increasing tax burden as a threat to their growth prospects, PwC reports.
In all, 80 insurance CEOs were interviewed as part of PwC’s recent 18th Annual Global CEO Survey, A marketplace without boundaries? Responding to disruption. The survey found that 64% of polled CEOs said they see the increasing tax burden as a threat to their growth, up from 57% two years ago, notes a company statement.
The response is in line with findings in the new PwC report, Insurance 2020 and Beyond: Equipping your business for the global tax revolution, issued Monday. The report is the latest in a series of viewpoints exploring mega trends that are reshaping the commercial and operating environment for insurers worldwide.
The central message of the report “is that whatever organizations are doing in the short-term – be it dealing with market instability or just going about day-to-day business – they need to be looking at how to keep pace with the sweeping social, technological, economic, environmental and political (STEEP) developments that are transforming the world,” notes a statement from PwC.
The reputation and well-being of companies, including insurance groups, is not just being impacted by governments, taxpayers and other stakeholders, but also by external perceptions of how they manage their tax affairs, PwC points out.
While the ramifications for finance and tax teams will be felt in both a new set of business demands and an overhaul of how these functions interact and operate, PwC notes, the report found “globally, this industry will find it difficult to cope due to the accelerating shift in market expectations, and challenges to existing business models, in a sector where operational processes are already stretched.”
PwC reports that tax has always been one of an insurer’s most significant expenses, comparable to payroll and claims. “As companies focus on maximizing return on equity and managing capital under new solvency regimes, the value that can be created by tax professionals is becoming increasingly recognized and highly prized,” the company statement adds.
The challenge is not just how to adapt now, notes the report, but how to develop the agility needed to deal with what looks set to be constant change within the tax environment in the years ahead. “In PwC’s view, the already stretched operational processes in insurance firms may find it difficult to cope.”
“Given the current speed of regulatory, technological and social change, the challenge for the insurance industry globally is less about what is already happening, and more about how to anticipate what further changes could happen between now and 2020,” says Colin Graham, PwC’s global insurance tax leader.
“Very few tax teams appear to have evaluated the likely future alternative scenarios, let alone made plans or put them into implementation,” Graham says.
To equip tax teams for the future, the report cites five priorities:
• develop and implement a modernized tax control framework;
• major automaton of data extraction and review processes are needed to ensure compliance and release tax professionals’ time to manage risk and advise the business;
• as demands on tax teams evolve, some tax operations are embedded in the business and others become increasingly automated, the skills, capabilities and approach of tax teams will need to adjust;
• as the focus of tax moves to sales and the end-consumer, tax specialists will need to be much closer to transactional activity; and
• the focus of tax optimization will shift from reducing to paying an appropriate amount of tax and ensuring that current tax policies stand up to current and future scrutiny.
“It is vital insurers globally respond in a clear and thoughtful way to a much wider base of stakeholders than before, including not only tax authorities and governments, but also regulators, investors, non-governmental organizations (NGOs), the media and the general public,” Graham advises.