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Research & Development Credit Case Study – Insurance Industry

Research & Development Credit Case Study – Insurance Industry
Download our R&D Case Study PDF

At Brown Plus, our tax professionals help businesses determine their eligibility and maximize their strategy for Research and Development (R&D) Tax Credit benefits.

About the R&D Tax Credit

The R&D Tax Credit rewards companies that pioneer innovation, which allows our society and our economy to flourish. Qualified Research Activities (QRA) must:

  1. Involve new or improved products, processes or software that result in increased performance, function, reliability or quality.
  2. Be technological in nature based on one or more of the hard sciences, such as engineering, physics, chemistry, biology or computer science.
  3. Attempt to eliminate uncertainty about the development or improvement of a product or process.
  4. Involve a demonstratable evaluation of alternatives for achieving the desired result through modeling, simulation, systematic trial and error or other methods.

The credit provides a tax break for certain Qualified Research Expenses (QRE) incurred from investing in QRAs, including wages, supplies and qualified contract expenses. The R&D Tax Credit is an excellent strategy for reducing a company’s federal and state tax expenses, freeing up capital to invest elsewhere in the business.

Insurance Company Business Activities That May Qualify

Almost any company that resolves challenges in an innovative way is potentially eligible for the R&D Tax Credit. The insurance industry may be exceptionally well-positioned to qualify for the credit by implementing or improving technology or processes that:

  • Assess risk, calculate premiums, underwrite policies or process claims.
  • Collect and report customer behavior data to use as inputs for risk calculations, trend identifications and marketing strategies.
  • Improve a client’s experience when contacting the company’s call center or logging in to an online portal.
  • Automate historically manual internal processes, such as billing or accounting.

The R&D Study Process

In order to help insurance companies and other clients identify their eligibility for the R&D Tax Credit, our professionals follow a study process including the following steps:

  • Technical and financial data is obtained regarding the Company’s processes and procedures in order to substantiate QRAs and QREs for the tax years included in the report.
  • The involvement and contribution of eligible employees towards QRAs is determined, and interviews are conducted with management and employees involved with the research and experimentation process.
  • QREs are quantified and funding sources are reviewed to determine the possible impact on R&D tax credits.
  • Schedules and supporting documentation are prepared.

Insurance Company R&D Credit Case Studies

Brown Plus assisted the following insurance companies in identifying their QRAs and securing the R&D tax credit dollars to which they were entitled:

Insurance Company A

Annual Premiums Earned: $112,000,000

Qualifying Research Activities:

Insurance Company A introduced numerous process improvements and custom software solutions to automate its reinsurance management, billing, claims, workers’ compensation, test automation, Business Owners Policy administration and other systems. Additionally, the company captured and analyzed accident, violation and loss information to provide more competitive rates for clean businesses and reduce the risk of adverse selection. The company also transitioned its on-premises claims system into the cloud, increasing its functionality, reliability, performance and quality.

Total R&D Tax Credit: $306,000 (annual)

Insurance Company B

Annual Premiums Earned: $201,000,000

Qualifying Research Activities:

Insurance Company B built a custom server to integrate internal and external customer specifications. The new server was developed to modernize the company’s claims system and provide the functionality for automatic payments. The company also invested in a new data model for acquiring better insights into opportunities for improving operational efficiency and enhancing the overall customer experience.

Total R&D Tax Credit: $255,000 annual

If you have any questions on R&D tax credits, contact our Brown Plus team.

Posted In: Tax | Research & Development Tax Credit | Insurance | Insights | Downloadable Resources

About the Author - Patrick Rogers, EA, MST

Patrick is a Tax Principal and Research & Development (R&D) Director at Brown Plus, where he is one of the key members of the Firm’s Tax Department. As R&D Director, he is responsible for managing tax credit consulting and compliance services for his clients, as well as leading the Brown Plus R&D Tax Practice.

Patrick brings over 17 years of experience in public accounting to the Firm. He specializes in R&D Tax Credit Consulting, project management and tax services. He is highly active with numerous professional associations within the accounting community. His expertise also includes all aspects of consolidated federal and state tax compliance, audit defense for IRS R&D tax credits and audit support for GAAP and statutory provisions.

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