The Challenges of Gathering Tax Information

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Insurance executives understand the challenges in obtaining and verifying claimants' tax return information. As a reinsurance executive stated, "We often request the tax returns to verify their authenticity. Sometimes, we find situations where a claimant records all their income under their spouse, among other issues." The claims process is, unfortunately, not just time-consuming and labor-intensive for insurance companies, but it also places an additional burden on the individuals making the claims. It's a system that necessitates a significant investment of time and energy, often during periods when claimants are already dealing with personal distress or hardship. This point was further highlighted by a leader in the reinsurance industry who noted the reality of the situation, saying, "Nobody wants to dig through their filing cabinet to find all their tax returns." This statement illustrates the inconvenient and often frustrating nature of the process, which requires claimants to provide extensive documentation, often dating back several years.

ModernTax offers a comprehensive solution to these problems.

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ModernTax provides direct access to IRS-verified financial data, removing uncertainties and delivering clear, confirmatory information. Despite competing with other vendors on the IRS IVES network, where there are unofficially 600 registered vendors as of 2022, our approach is more holistic. We understand that tax information is not just a means to an end, but a crucial part of the insured’s experience with their carrier, especially during difficult times. As one executive commented, "Your approach is different. I wouldn't compare it with others because your data is financial, third-party, and confirmatory. You take the burden away from the insured, enhance the underwriting and claims experience, and provide an end-to-end solution we can use across teams. It might even reveal new information. But there's no ambiguity. It is what it is."

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This detailed, factual data enables insurers to make confident decisions and automate key processes. "And so, hopefully, [ModernTax] will also follow this path... I think it's exciting to break into an automated method for obtaining this private information that people usually find inconvenient to deal with." The insurance industry is even behind the banking sector, which has products like Plaid and Yodlee that have made financial information accessible. However, the manual process of collecting tax and financial records remains a significant hurdle for 99% of carriers who offer income and financially-related products. Let's delve deeper into the biggest problem we are currently solving for carriers.

The Bigger Problems ModernTax Solves

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Getting individuals to share sensitive financial information like tax returns is just the tip of the iceberg when it comes to the challenges insurers face in underwriting and claims management. Underneath lies a host of deeper issues that ModernTax is uniquely positioned to solve:

Operational Inefficiency

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The current approach to managing tax return data - from requesting to reviewing and acting on it - is highly manual, time-consuming, and prone to errors. Claims staff spend a substantial amount of time gathering information, leading to delayed decisions. According to one claims member, her team of in-house CPAs spends between 20-30 hours weekly on this task alone. She emphasized that their team evaluates tax returns "all day long", indicating that it requires a significant portion of their resources, despite having other duties. ModernTax automates the entire workflow, from consent to the delivery of structured data reports, resulting in considerable time and cost savings.

Data Inconsistency

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Insurers receive tax documents from various sources like claimants, accountants, and the IRS website. These documents often come in different formats, mainly because tax software systems like Intuit's Lacerte suite and Thomson Reuter's suite deliver tax returns in distinct ways. This variation leads to data problems as the information from claimants or accountants can be missing, outdated, or hard to interpret. ModernTax, however, provides standardized, IRS-verified transcript data in a consistent format. This enables straight-through processing and facilitates direct comparisons. As AI and ML solutions emerge, we are developing methods to present data in formats that are most convenient and productive for our internal claims and underwriting teams.

Fraud and Non-Disclosure

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A growingly significant number of claimants neglect to report income which could affect their eligibility for disability benefits. This also can impact carriers on the underwriting side as well, but it hits the balance sheet when money goes out when claims are made. This type of "soft fraud" can be hard to detect through conventional methods. We've even encountered a large carrier that has hired private investigators to confirm if claimants are engaged in work that violates their policy.

ModernTax, with direct access to IRS records, can reveal unreported income and provide an accurate depiction of the claimant's financial situation. Our team collaborates closely with the carrier's legal and compliance team to ensure that their consent forms encompass tax returns. In many instances, insurers have federal rights to access tax information.

In the coming months, we plan to delve deeper into the legal and compliance-related risks and benefits of accessing tax records directly from the insured versus using solutions like ModernTax.

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Lack of Real-Time Visibility

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Annual tax filings offer a retrospective view of a claimant's income, but insurers often require real-time information for informed decision-making. ModernTax provides on-demand access to the most recent IRS data, including W2s, 1099s, and more. This enables proactive claims management. We are also developing real-time reports that allow underwriting teams to obtain snapshots of Year-To-Date (YTD) income numbers. An added benefit for claims is that many insured individuals remain on claim for years, even decades. We support lookback periods of up to 15 years, assisting carriers in assessing long-term income history.

Compliance Risk

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Collecting tax information exposes insurers to privacy and security risks due to the highly sensitive personal data involved. ModernTax's API-driven, SOC-compliant platform mitigates these risks by keeping sensitive data off the insurer's systems, while still providing essential information for decision-making. We are also beta-testing a new user interface. This allows insurers to collect consent and forms needed to access tax information more effectively. It's the first in a series of features we're developing to increase conversion, improve clarity, and enhance the user experience when sharing sensitive information.

In summary, while ModernTax streamlines a critical data-gathering process, its real value lies in its ability to drive transformative improvements across the insurance value chain - from increased efficiency and data quality to better fraud detection and risk management. It's a comprehensive solution to some of the industry's toughest information challenges.

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