VATINS3420 - Types of Insurance: Run off Services: Run-off services supplied by third parties

Insurers will often appoint third parties to administer the run-off of the particular class of business etc on their behalf. The functions to be performed will be set out in an agreement between the parties, and typically will encompass the elements shown above. For example:

• processing additional and return premiums;
• dealing with claims received;
• obtaining reinsurance cover; and
• generally administering the run-off.

Provided that responsibility for paying claims arising from business underwritten remains with the insurer, the third party dealing with the run-off may be regarded asacting in an intermediary capacity. The liability of the third party’s insurance related services, therefore, will follow that of the original supplies of insurance (see section 6 for guidance on this). Any incidental administrative element within a single supply of run-off services would also follow the same liability.

You will need to guard against agreeing exemption, however, where there is any indication that separate administrative services are being provided (such as,accountancy, supplies of staff etc.) which would not fall within the exemption for insurance intermediaries (see VATINS5000) and be taxable in their own right.

It is vital that the terms of the agreement between the insurer and the person dealing with the run-off are examined and understood. One indication that administrative services are being supplied separately would be if a separate rate of charges existed for them. Another might be that they are described in the agreement as being “optional”, available separately as and when required.