Tax insurance records tremendous growth in 2022

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In 2022, Marsh UK witnessed sustained growth in our tax insurance product. Year-on-year gross written premium increased by 163%, and the number of standalone tax policies rose by 143%.

Why is interest growing in tax risk insurance? This bulletin aims to explain the reasons for the growth of the tax insurance product.

1. Expansion of tax insurance risk appetite

In recent years, the majority of tax insurers have recruited dedicated senior tax specialists to underwrite tax risks. This has increased confidence in insurers to underwrite various types of tax risks. These risks span many jurisdictions and include issues that are both under audit or the subject of ongoing disputes with the relevant tax authority. The surge in appetite for tax risks has greatly enhanced the pool of insurable tax risks.

2. Competitive pricing

Until recently, the European market was limited to several accomplished tax insurers. Today, the market has expanded to over 10 tax insurers, with some boasting significant capacity. The inflated competition among insurers has driven pricing down. Subsequently, it is not unusual to see tax risks being insured under a 2% premium rate; with rarer circumstances even below 1%. Such premiums were previously thought to be inconceivable. Competitive pricing for similar - or sometimes enhanced levels of cover – has resulted in a much more attractive product.

3. Lack of seller indemnities

Sellers, especially private equity sellers, are increasingly unwilling to provide indemnities for tax risks related to the target entities being sold. Tax insurance is now an option for buyers who cannot rely on seller indemnities. As further sellers refuse to provide sufficient indemnities, there is a significant rise of buyers turning to tax insurance as an alternative.

4. Assertive tax authorities

The financial crisis of 2008 and the COVID-19 pandemic have burdened governments with large fiscal deficits. One potential solution to fill these is taxation. Consequently, tax authorities across the globe have become more aggressive and assertive in their approach for taxation. As a result, tax insurance is increasingly being recognised by taxpayers as a tool to effectively manage their tax risks.

Tax insurance has experienced tremendous growth over recent years and nothing suggests this growth will abate in 2023. Taxpayers are becoming more aware of the tax insurance product’s advantages. Marsh believes our dedicated team of global specialists is well placed to assist clients in benefitting from the opportunities presented by tax insurance.

Report

Tax insurance records tremendous growth in 2022

1. Expansion of tax insurance risk appetite

2. Competitive pricing

3. Lack of seller indemnities

4. Assertive tax authorities

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Tax insurance records tremendous growth in 2022

1. Expansion of tax insurance risk appetite

2. Competitive pricing

3. Lack of seller indemnities

4. Assertive tax authorities

Related insights

Transactional risk insurance 2023: Year in review

Tax insurance: De-risking the refinancing of portfolio companies

Cyber in M & A series

Why cyber risk and insurance due diligence should be part of your M&A process