Pressures around data and technology, and increasingly complex regulation are forcing insurers to transform their tax and finance operations. Tax and finance functions at financial services companies are increasingly being called upon to manage new and emerging risks and opportunities. A significant increase in both tax and nontax regulatory change, a reframing of tax policy around the world, industry consolidation, and changing stakeholder expectations are creating enterprise-wide pressures, and tax and finance functions find themselves at the center of them. 

It is a landscape that has particular resonance for organizations in the insurance industry, which have faced a host of specific challenges in recent years.

Not least among these is a barrage of regulation that has come into effect – be it around taxation, accounting changes or solvency capital requirements.

Matters are only going to become more complex with the imminent 1 January 2023 implementation of IFRS 17 – set to be the most significant accounting change affecting insurance in some time – and the base erosion and profit shifting (BEPS) 2.0 Pillar Two, with its global minimum tax rate.

The road to transformation

This is all set against a backdrop of an industry that has been undergoing continual evolution of its distribution models and broader digitalization of the sector – whether that be from a customer gateway perspective or in relation to the data that sits behind insurance organizations themselves.

  • Tax departments in the insurance sector are faced with a perfect storm of complex regulation, legacy systems and products, and challenges managing data.
  • It is a landscape that will only become more challenging in the years ahead as more regulation is introduced and the role of technology accelerates.
  • Finance functions within insurance organizations must transform their tax and finance functions to meet these challenges and future-proof their operations.

More recently, insurance was one of the industries hardest hit by the COVID-19 pandemic. From claims around personal policies, such as income protection, to those including business continuity and the collapse of global supply chains, significant losses have been booked in the past two years.

The emerging risks, such as cyberattacks, are often hard to price. And there is a continual hardening of the reinsurance market, with such policies being tougher or more expensive to obtain.

This combination of challenges is not only putting pressure on insurance margins and premiums but also forcing insurers to consider transforming their tax and finance functions to deal with what they face now, and what is coming in the near and medium-term.

According to the 2022 EY Tax and Finance Operations Survey, 87% of respondents from the insurance sector say they are changing their tax and finance operating models. 

Why insurance businesses need to transform

The road to transformation

It is worth starting by examining the reasons why reimagining the tax and finance operating model is critical for the insurance industry.

Tax and finance functions of multinational insurers are typically decentralized. They are usually delivered in-country with limited direction from the group head office, which will often establish parameters and expectations for local functions to implement.

While there are a number of reasons for this – including organizational culture, different products and distribution channels across markets, and differing levels of market maturity – a decentralized approach to tax and finance can result in increased risk with reduced efficiency. 

What’s more, a decentralized model can lead to inconsistencies; difficulties in implementing regulation and emerging global tax rules, such as the incoming BEPS 2.0; as well as challenges managing matters such as tax controversy. 

Legacy products and systems

Both industry consolidation and product lifecycles mean that many insurers have large legacy books. Ongoing regulatory requirements for legacy products mean insurers are required to maintain systems and processes, often for many years into the future or until product rationalization can be completed.  

Accordingly, tax and finance compliance frameworks have tended to be subject to manual adjustment, low levels of automation, and drawing data from multiple (and often incompatible) systems. This results in increased risk, inefficient processes and an overall lack of transparency.

The nature of tax and finance adjustments

While the rules applying to insurers differ from country to country in terms of complexity, the way insurers are often taxed, particularly life insurers, means that there are many book-to-GAAP-to-tax adjustments that aren’t drawn directly from the enterprise resource planning (ERP) framework.

They are drawn from unstructured data that is often determined outside existing systems – in some cases using spreadsheets and independent (black box) models.

The nature of tax, GAAP and other adjustments can mean increased potential for human error. Without a clear and documented automation framework, this may give rise to emergent risk as unstructured data sources change without a corresponding assessment of the downstream data usage.

Increased succession risk 

The complexity of the insurance industry and the level of necessary specialized knowledge limit the depth of the market for suitable tax and finance professionals. Insurance is complex and rules can vary significantly from country to country, so skills aren’t always easily transferable. The pandemic has only served to exacerbate this risk.

This gives rise to an overall increase in succession risk with significant corporate knowledge and understanding of process often invested in just one person. 

Reliance on nontax functions

The nature of tax adjustments and maintenance of data needed to manage controversy is often owned by functions outside tax – these can include actuarial, finance, customer, human resources and distribution. For example, manual tax workpapers that are prepared based on legacy systems by people in finance.

This significant reliance on shadow tax participants can lead to an increased risk of missing tax changes or not appropriately identifying tax issues in a timely manner.

In addition, as tax functions are not typically the data owner, it is more likely that data and sources are changed or modified by the owner for their purposes with no consultation with the tax function. This is particularly relevant for the insurance industry due to the significant volume of unstructured data required to be taken into account in the tax calculations.

The enterprise-wide challenge

The road to transformation

While the above largely demonstrates systemic issues in the insurance tax and finance function, it is clear how they link across the broader enterprise. But there are wider operational challenges that those functions are feeling right now that create an even more urgent need to transform.

According to the EY TFO survey, “Organizations are having to find a balance between driving value, managing risk and reducing cost. Yet they are attempting this even as they face challenges retaining and transforming their talent, keeping up with legislative and regulatory change, and future-proofing their technology and data.” 

On one hand, many insurers have already recognized the value-adding role that tax and finance functions can play in the broader business. As a result, 96% expect to reallocate some of their tax and finance budget in the next 24 months from routine activities, such as tax compliance, to strategic activities, such as legislative change, planning and/or controversy.

Reallocating budget 96% of respondents from the insurance sector anticipate reallocating some of the their tax and finance budget.

This should hopefully start to reverse unnecessary time spent on certain tasks and increase the time available to partner with the wider business around managing emerging risks and opportunities. 

The survey reveals, for instance, that 74% of respondents feel their tax and finance departments spend an inappropriate amount of time on data collection, cleansing and validation, with 70% spending inappropriate time on tax compliance.

Critically, however, any steps toward transformation may be impeded by the need to reduce cost. Indeed, 87% of survey respondents plan to reduce the budget of their organization’s tax and finance function over the next 24 months, by an average of 5.3%.

This is despite an expected rise in the workload across tax and finance functions, including an anticipated 74% increase in governance and reporting on global tax policy and controversy to key stakeholders, as well as the significant cost of complying with emerging digital tax filing requirements over the next five years.

It is a situation made more challenging by many organizations’ inability to accurately measure the cost of their tax department. This is often calculated solely by the headcount of the tax team. However, consider the shadow tax functions mentioned above – while not part of the tax team, they carry out tax processes and therefore should be counted as a tax cost.

The road to transformation

The road to transformation

While insurers appear to readily recognize the need to transform, there are key obstacles to making their ambitions a reality. These obstacles also vary significantly from one organization to the next.

When asked, “What is the biggest barrier to delivering your tax and finance function’s purpose and vision?,” 41% of survey respondents cited an inability to identify, evaluate and respond to legislative and regulatory change. Meanwhile, 39% named a lack of a sustainable plan for data and technology, and 19% the inability to hire and retain required talent.

While data and technology will provide the backbone for a large proportion of insurance activity – from automation of processes to reporting to tax authorities – the complexity of the regulatory landscape is exceptionally challenging right now.

As mentioned earlier, the industry is going through the implementation of IFRS 17 – the newest standard for insurance contracts. This is going to essentially reframe the way that accounting results are presented and how accounting outcomes are calculated, so it is the most significant accounting standard change in many years.

Alongside this is the introduction of BEPS 2.0, which will have a major impact, especially on multinational insurers. 

Considering all of the challenges facing insurers, it is perhaps unsurprising that as part of transformation, 85% say they are more likely than not to co-source select tax and finance activities over the next 24 months.

But the sourcing model that best suits one organization may not be right for the next.

As such, insurers may want to consider the following five points: 

1. Build an effective operating model 

This starts with identifying exactly what the current model is and what future model a business wants to get to, and how to bridge the gap between the two. This will involve mapping each activity that ought to be undertaken by the tax function and which activities could be delivered alternatively – be it through automation or outsourcing/co-sourcing.

According to the TFO survey, as well as using in-house shared service centers, 56% of insurers are changing their tax and finance operating models through “co-sourcing with a provider with significant capabilities in data, technology and shared service center delivery,” while 33% are “driving increased automation within the internal function” among other solutions.

2. Build technology into the operating model

Revenue and other regulatory authorities globally are investing in data analytics capabilities, which reinforces the need to build technology into the operating model. Insurers must decide whether they build this technology in-house, partner under a managed services model or adopt a hybrid approach.

While a “build” solution might seem more proprietary, it will carry significant risk of obsolescence and ongoing maintenance.

While 81% of respondents plan to invest an average of US$3.5 million in tax technology over the coming three years, this could be viewed as a relatively small amount and might suggest a tactical technological approach to discrete projects.

It is worth noting that while technology will be an important component in any tax operating model in the insurance industry, it will rarely be a solution on its own.

3. Establish a standardized way of working 

A key element of an optimized operating model for the tax and finance function will be establishing, as far as possible, a standardized way of working across local entities. Most insurers have a decentralized approach because they want each of the local business units to be run with enough autonomy, but this can result in different risk outcomes. Standardizing and streamlining the way of working, together with eliminating redundant processes, is critical.

4. Adopt an operating model on a common platform

Similarly, insurers with decentralized tax and finance functions might need to adopt an operating model that prescribes minimum standards and expectations delivered on a common platform. This will be critical in terms of meeting the needs of the group tax function.

5. Develop a clear business case

To achieve a reimagined tax and finance operating model, insurers will need to develop a clear business case assessment highlighting the value of that function partnering with the business. This will contain a transformation and automation roadmap, and an implementation plan including clarity around the roles and responsibilities of the retained function where there is an outsource component.


Insurers continue to face pressures from customers, shareholders, regulators and tax authorities. This is set against the need for a robust technology framework to handle increasing volumes of data and the continued introduction of complex regulation. 

The harsh reality is that transformation is a necessity, not an option. Tax and finance functions not only have an opportunity to reimagine their operating models but also have a major role to play in delivering organization-wide change.

The challenge for insurance tax and finance functions is to do this in a way that ensures they add real value when partnering with the business, are well positioned to leverage data, and are able to drive reduced risk and increased efficiency across their business processes.


AUTHOR: Dale Judd – EY Global Tax Insurance Leader; Asia-Pacific FSO Global Compliance & Reporting Leader, David Bearman – EY EMEIA Tax Insurance Leader, Scott Guasta – EY Americas Tax Insurance Leader

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