Insurtech is the buzzword in the insurance industry right now, with dozens of UK start-ups all trying out new ideas and often hungry for investment cash. But what can they do to increase their chances of getting off the launch pad? Is there anything companies can do to get more government help?
Definitely, says Luke Hamm, CEO of GovGrant
It’s taken a while but it seems that the UK insurance industry has well and truly caught the Insurtech bug. For years, analysts, the media and consultants have been championing the benefits of innovation to drive the change necessary to deliver the products and services that the modern consumer demands.
And it appears that those messages have been taken on board with the money following quickly behind. According to Accenture, the first half of 2017 saw £218m invested in UK Insurtech which was a huge leap on the measly £7.3m the year before with deal making increasing by 75% in the same period.
Companies such as Brolly, Cuvva and Nimbla are good examples of successful UK startups, embracing the Insurtech spirit. But as investment continues to pour in, so the number of startups focused on the disruption of the UK market will increase.
To date, it is this external investment that has grabbed the headlines and understandably so, for the best ideas in the world will get nowhere without the necessary capital to make it a reality. But what many existing and nascent organisations may not be aware of is that there are Government incentives to get businesses like theirs off the ground and growing.
Back in 2000, the Government introduced Research and Development (R&D) Tax Credits to encourage greater R&D spending, in turn leading to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or by making a payment to the company if it is loss-making.
According to Government statistics from 2015-16, nearly £3bn has been claimed back by UK companies and while it appears knowledge of the scheme is growing (a 20% increase on the previous year), the scale of adoption is till not what the Government would like.
Indeed, in his 2017 Spring Budget speech, Chancellor Philip Hammond bemoaned the lack of take-up of the scheme and my experience of working in this space, backs that sentiment up. At GovGrant, we assist businesses, including InsurTech, to maximise the funding opportunities through innovation tax incentives when they are investing in R&D and Intellectual Property. We come across too many companies that are completely unaware of what is available and even when they are aware, they may think it doesn’t apply to them or that it’s just too difficult to secure.
Admittedly the rules for qualification aren’t very straightforward and can seem difficult to navigate for the uninitiated, particularly startups and SMEs who don’t have the time to plough through all the necessary regulation that supports the scheme.
However, for SMEs, the rewards can be significant. The average claim for GovGrant clients is worth £61,000 and overall, we have delivered over £160m in claim benefits to companies. Unfortunately, we estimate that 80% of eligible SMEs have so far not taken advantage of what is on offer.
So what does making a claim entail? As I said, it’s not straightforward but at a high level, SMEs need to consider the following:
- Do you design or make new products?
- Do you seek to improve processes, services, materials or devices?
- Do you make prototypes or perform testing?
- Do you develop software or IT solutions?
- Have you invested in failed projects or developed products that are never launched?
- Do you employ any staff with a technical or scientific background?
If the answer to more than one (or all!) of the above is yes, then there is an excellent chance that your business will qualify for an R&D tax credit. In fact, 95% of the companies that approach us qualify for the scheme. The potential gains from investigating this scheme are significant with SMEs typically getting back up to 33% of their investment in R&D. And all this can be realised in a matter of weeks, depending on whether you decide to go it alone or work with advisers.
Also, if you are a company that is engaged in any of the above, you could also be looking at further tax benefits under another scheme introduced in 2013. The UK Patent Box was set up as a supporting device for the R&D scheme and is designed to encourage UK companies to keep their innovations (and their patents) and the exploitation of them in the UK.
Patents are often seen as the preserve of the sciences but if a business invents a product, element of a product or process that is new, solves a technical problem and is applicable to multiple industries, there is a good chance that it could be patented.
If you have an existing patent or identify the opportunity to secure one, you could be looking at a corporation tax rate of 10% on profits derived from any products that incorporate patents. That could deliver a significant increase to the overall profits of an SME.
Again, the process is neither straightforward or easy to navigate but it is absolutely feasible with companies already securing over £1bn in tax credits annually.
With all the focus in the Inusrtech space being on the sexy innovations and the huge amounts of capital flooding in, it is easy to forget that there are thousands of small companies, up and down the land, who are quietly innovating and changing the way that insurance operates now and in the future.
They need help to get themselves established and make their ideas a reality in what is a very traditional market. The easing of the tax burden upon startups is one of the surest ways to make success a reality and what’s more, the Government is desperate for businesses to use these tax breaks to pour more and more capital into product and process innovation.
Nobody likes dealing with taxes (that’s why accountants exist) but there are people out there who can help a fledgling company be rewarded for the part they are playing in making sure that the UK insurance industry remains a global power for decades to come.
Visit http://www.govgrant.co.uk to find out more