In a post-HST world, look for insurers to cut down on their outsourcing: CIFF panel

Look for insurers to start saving money on contract costs by bringing more of their work in-house, thus cutting down additional expenses related to the new Harmonized Sales Tax (HST).
The HST applies to a broader range of services, and more tax will be unrecoverable under the HST, compared to the situation in which the GST (5%) is separate from PST (8%).
Prior to the July 1, 2010 implementation of HST, only the 5% GST is unrecoverable.
The new HST tax is applicable to several insurance costs, including occupancy costs, claims contractors, legal services, consulting services, tech support and call centre services.
“Knowing now that contract costs are 13% more [under HST] than internal, using our own employees, as opposed to 5% more [under GST], that does change your dynamic,” Mark Novak, Aviva Canada’s head of tax, told seminar participants at the Canadian Insurance Financial Forum (CIFF) in Toronto on May 19.
“There is no HST on salaries, so you could save merely by keeping more in-house or bringing more in-house.”
Former PwC partner Dean Summerville, the moderator of the panel discussion ‘Key Tax Issues,’ said insurers might start to hear this same kind of advice coming from their accountants in the future.
“There’s incentive now to avoid outsourcing stuff,” Summerville said. “We’re dealing with clients that have a lot of outsourcing arrangements and saying: ‘You should consider, maybe, whether the cost-benefit is to in-source.’
“I know that in these big outsourcing assignments, arrangements, the margins are really tight. It’s a total cost-benefit to do that [outsource]. By adding an extra few [percentage] points [onto the tax], it makes it less cost-effective.”