Brexit: Implications for General Insurance

Background

The UK is due to leave the EU on the 31 October 2019 (although it is possible that this date could be delayed once again, through an extension of the Article 50 process). With a newly instated Prime Minister and Cabinet, there are several uncertainties surrounding the next steps in the Brexit process. The new PM, Boris Johnson, has committed to negotiating a deal which filters out political issues surrounding the Irish Backstop proposal, but refuses to rule out a no-deal Brexit.

This means whilst some outcomes are more likely than others, between now and the date of withdrawal, the main possibilities still open are:

1. Parliament ratifies a deal between the UK and the EU before the withdrawal date, and this triggers a two-year transition period.
2. The UK leaves the EU without a deal, and there is no transition period.
3. The UK decides not to leave the EU, possibly after a second referendum

As it stands, the second option would still have the biggest implications for insurance professionals in the short term.

Although there will be many professionals who deal exclusively with UK clients and will not experience a strong direct impact from Brexit, many professionals operate on a cross-border basis between the UK and the EU. Brexit will impact the way in which their firm operates, and it will impact the way in which their professional qualifications are recognised.

No-deal planning – FCA guidance

In the event of a ‘no-deal’, firms authorised in the UK will no longer be able to passport services into the EU. They will have to be authorised in the EU in order to continue trading there.

The FCA has launched a one page advice flyer for preparing your business in case of a no-deal Brexit scenario.

No-deal planning – Legacy business

For legacy business, the impact of a ‘no-deal’ scenario is complex. The Bank of England has said, "The UK government is legislating to ensure that the 16 million insurance policies that UK households and businesses have with EU insurance companies can continue to be serviced by those EU companies after Brexit..." (See https://www.fca.org.uk/brexit/temporary-permissions-regime for more information on the 'temporary permission regime' for incoming EEA firms).

The UK authorities have expressed a hope the EU will adopt a similar approach in a ‘no-deal’ scenario. However, the EU’s legislative plans for a no-deal Brexit only include contract certainty for wholesale financial instruments such as derivatives, and the Commission has said, "clients in the European Union of UK firms need to prepare for a scenario in which their provider is no longer subject to EU law".

Whilst there has been no official legislation passed by the EU itself, the European Insurance and Occupational Pensions Authority (EIOPA) offered further advice and clarification in February on a no-deal scenario. EIOPA’s key recommendation stated: ‘‘Competent authorities should apply a legal framework or mechanism to facilitate the orderly run-off of business which became unauthorised or they should require the insurance undertakings to immediately take all necessary measures to become authorised under Union law’ (https://eiopa.europa.eu/Publications/Recommendations/EIOPA-BoS-19-040_Recommendation_Brexit_final_EN.pdf).

This is direct guidance to member states, and some EU governments have already taken steps to increase contract certainty at a national level. For instance, Germany and Italy have both offered transitional periods for UK insurance firms to be able to cancel and settle insurance contracts, with Germany specifying a period of 21-months before alternative arrangements would need to be made (https://researchbriefings.files.parliament.uk/documents/CBP-8547/CBP-8547.pdf).

Sweden on the other hand has not offered this, although it has stated any UK firm can "establish a Swedish branch and obtain the Swedish Financial Supervisory Authority’s authorisation to carry out insurance business in Sweden post-Brexit" (https://www.lexology.com/library/detail.aspx?g=e80bc6fe-9a3f-49eb-abb7-e8fe1e0c9e6b). However, since the exact circumstance of a no-deal is difficult to predict, the way in which these measures could be implemented is still not entirely clear.

Qualifications

For individuals, cross border recognition of professional qualifications is currently governed by the Recognition of Qualifications Directive. This will no longer apply in a no-deal scenario (and after the end of a transition period). As a result, each individual country in the EU will have to decide which qualifications to recognise.

The Central Bank of Ireland for example, currently recognises some CII qualifications (https://www.centralbank.ie/regulation/how-we-regulate/authorisation/minimum-competency/qualifications). However, other countries in the EU, such as Belgium, require individuals to have qualifications and do not currently recognise CII qualifications. We continue to work with regulators in the EU to explain the benefits of UK qualifications, and, where possible, secure recognition for CII qualifications.