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Brexit presents fundamental implications for the insurance industry

Following the UK’s Brexit Referendum which determined that the UK would leave the EU, the effects upon the UK and EU insurance industry quickly began…

Following the UK’s Brexit Referendum (“the Referendum”) held on 23 June 2016 which determined that the UK would leave the European Union (“EU”), the effects upon the UK and EU insurance industry quickly began to unravel.

Brexit presents fundamental implications for the insurance industry. When the UK, in the absence of a transitional period (or upon the conclusion of any such period) leave the EEA, passporting rights will cease. Following the UK’s December 2019 General Election, it appears that the UK government are highly likely to deliver the outcome of the Referendum and leave the EU on 31 January 2020 (subject to the successful passage of the relevant legislation).

As a result of the Referendum, the insurance industry has been forced to consider their business plans and models together with their risk appetites.  

Some of the considerations for UK insurers writing business within the EU have, and continue to include:

  • Regulation and equivalence;
  • Servicing and managing existing business;
  • Portfolio analysis and planning;
  • Domiciliary geography; and
  • Risk management and capital spend.

In the UK the insurance industry embraced change very quickly, with a number of large insurers moving their European business to an EU base. Not only did this provide business continuity but also provided customer stability and reassurance where the customer’s policy had been placed within the EU. Ekelmans have not experienced such a flurry of activity in Dutch insurance industry. .

The need for immediate planning from Holland’s insurance industry could possibly have been subdued by the UK’s unilateral measures in the form of the temporary permissions regime (“TPR”) which permits the EU 27 member states with existing UK passports to continue to operate for a temporary period in the UK following notification to the UK regulators. This is of course a unilateral offering from the UK and not something which has met with reciprocity from all EU 27 member states. However, the TPR does not provide a complete guarantee for EU insurers as, if they fail to make the TPR notification prior to the date the UK leaves the EU then they will be unable to enter into the regime, meaning they can only operate in the UK once they have secured a full UK authorisation to do so.

Not every EU insurer will have reached the decision to continue operating in the UK beyond Brexit for a number of different reasons. For those EU insurers who intend to ’run off’ their book of work in the UK then the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 (“FSCR”) statutory instrument will certainly have been of interest. The FSCR provides limited permissions for EU insurers to perform existing contracts but does not allow them to carry out regulated activities in relation to new contracts. EU insurers will be able to ‘run off’ their UK business under the provisions of the FSCR if they already passport into the UK.

Since June 2016 there has been significant uncertainty for insurers both in the UK and EU. However, it is clear that the impact of Brexit so far has not had the same level of intensity across all EU member states. The time for the UK to leave to the EU is fast approaching and contingency must now gather momentum. ILG, through their international network of members can assist with this.

This article was written by Jacqui Bickerton, Principal Associate, Weightmans, Frank Schaaf, Attorney at Ekelmans and members of ILG .If you have any questions regarding this update, please contact Jacqui Bickerton, Principal Associate on 0151 242 6846 or jacqui.bickerton@weightmans.com.

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