PwC Insurance Facts and Figures 2011 - PricewaterhouseCoopers

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GST and insurance claims processes – Best practice Key questions Have you considered How insurance Claims processes impact GST compliance? Have you realised all the indirect tax savings in your insurance claims function? Did you know the GST treatment of premiums can impact the claims system and processes? Key findings Claims managers spend significant time and resources on improving systems and processes to gain operational efficiencies and reduce overall claims costs. These improvements are generally achieved through changing elements within a claims process. Where systems or processes are changed and new steps introduced/deleted, there is the potential to significantly impact GST compliance. For example, failures to have in place or adhere to claims lodgement scripting in a call centre can result in significant GST compliance risks that are often unidentified. Similarly, another example is where changes are made to the emergency repairs criteria. This is particularly evident after extreme weather events, and other periods of high claims activity. Resources are placed under significant levels of stress and standard processes may be abandoned in favour of higher claims processing volumes or better customer experience. Whether it be introducing a new process, system changes or changes to arrangements, etc insurance claims managers must maintain robust systems and processes. This will ensure the GST implications of its claimsand recoveries are appropriately realised. In addition to the very real risk of GST compliance errors, in our experience, claims environments usually contain opportunities to realise GST savings. While considerable effort is usually made to reduce claims costs resulting in special project teams being established, base line monitoring performed, etc, little ongoing effort usually occurs in relation to identifying GST savings. This is despite the fact that a 10% GST component exists on most claims costs. Investing time to review the GST efficiency of existing claims processes should be actively considered by most insurers as there are usuallyuntapped opportunities available. The ability to claim GST credits (input tax credits (ITCs) or decreasing adjustments (DAs)) in respect of insurance payments is reliant on the GST treatment of the insurance premium paid by the customer. Accordingly, where insurers use separate underwriting and claims systems it is important to ensure the systems are configured to properly interface from a a GST perspective. That is, it is crucial to identify the correct GST treatment of each insurance policy, not only for underwriting purposes, but also to ensure compliance can be maintained in the event of a claim. A particular example of this is where a policy such as travel insurance may cover both on-shore and offshore risks. Correct classification of the policy will be crucial to ensuring the correct GST treatment is applied to the policy. 28 PwC
Key questions Are you paying too much GST on recoveries? Key findings Whilst GST applies to most insurance recoveries made on Personal Insurance claims, there are a number of circumstances where this is not the case. Equally, there are limited situations where GST is payable on recoveries on Commercial Insurance claims. Do you know if your systems get this right? In our experience, systems and processes in recoveries departments are rightly focused on operational efficiencies – Such as the number of open files. Another transaction based risk such as GST, receives little or no attention on the assumption that existing processes are accurate. Do your claims leakage reviews or reinsurance recovery reviews consider GST issues? Claims leakage reviews and reinsurance recovery reviews are crucial to operational effectiveness in the way they monitor and manage the cost of claims. However, it is important for insurers to be aware that the overall ‘cost’ of insurance claims is reliant on the way they are treated for GST purposes. In our experience, few insurers maximise the opportunity to leverage from these existing review processes to address GST compliance matters. In the same way that fraudulent claims or inefficient reinsurance arrangements are direct costs that have an immediate impact on the bottom line, GST errors can have a significant effect on the cost efficiency of the overall claims process. Therefore, given there are significant resources being spent to address claims leakage, in our view it is appropriate to consider if these existing processes can or should include a GST component. Conclusion Proper attention to staff training and adequate system rules are necessary to ensure GST is not under or over paid. However, to rely on these controls alone is fraught with danger. After all, how do you know if staff training is being followed? The answer lies in ensuring the insurance claims function has in place a tailored GST compliance monitoring framework that leverages existing claims review processes and realises GST opportunities as they arise. PwC Contacts Peter Kennedy t: 02 8266 3100 e: peter.kennedy@au.pwc.com Michael Flanderka t: 07 3257 8335 e: michael.flanderka@au.pwc.com Insurance Facts and Figures 2011 29
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Page 10 and 11: APRA’s Insurance Capital Review 1
Page 12 and 13: Limits on asset exposures • Propo
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Page 28 and 29: Conclusion Knowing your obligations
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Page 34 and 35: General Insurance 32 PwC
Page 36 and 37: Introduction Scott Hadfield The pas
Page 38 and 39: Statistics Top 15 general insurers
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Life Insurance 78 PwC
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Introduction Tony Cook This year, t
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Statistics Top 15 life insurers 3.1
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Key developments in 2010/11 3.2 Top
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Regulation and supervision 3.3 Aust
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Australian Securities and Investmen
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Cost of investment performance guar
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Solvency and capital adequacy 3.4 W
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Management of risk and reinsurance
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Reinsurance This standard aims to e
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Governance APRA has undertaken a fu
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Accounting Standards 3.7 AASB 1038
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Life investment contract A life inv
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The best estimate liability will no
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Acquired life insurance contracts W
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Life insurance taxation 3.8 General
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Assessable income The assessable in
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Ordinary Class revenue losses can o
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Financial Position: Outstanding cla
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As a heavily regulated industry, th
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Solvency and capital adequacy 4.4 A
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Financial and regulatory reporting
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Annual accounts Audited annual Corp
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Taxation of health insurers 4.7 An
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5 Introduction - Billy Bennett 138
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Insurance Facts and Figures 2011 13
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Specific provisions under the Corpo
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Financial reporting 5.4 Annual acco
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Goods and services tax Under the Au
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6 6.1 Key developments in 2010/11 1
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Key development Privacy law Summary
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Regulatory Framework for the Insura
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Product disclosure, insurance busin
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Ability to pay claims 6.5 The Finan
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ICAAP IFRS ILVR KYC LAGIC LAT LMI L
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Notes
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