BIBA views on Brexit and the Government’s White Paper
27th July 2018
This Paper on Brexit offers no new solutions and in fact falls short of what is needed for our services-orientated nation. BIBA is therefore reiterating to members that UK based insurance brokers insuring an EU based customer with a UK insurer will need to establish the UK insurer’s Brexit plans.
Services represent 80% of the UK economy and there are 2,775 UK insurance brokers with passports to trade in the EU. This is more than any other sector and accounts for around £8 billion of business. Therefore it is of huge concern that the Paper makes it clear that the UK can no longer operate under the EU’s passporting regime. Despite the obvious political challenges in reaching this, a mutual market access solution, in our view, would still be the best way forward.
Passporting into the UK is an issue for EU insurance brokers as well as insurers. EU brokers bring business to the UK when using UK-based wholesale insurance brokers to place business into the Lloyd’s market, for example. UK brokers use EU insurers as capacity, often on some of the more difficult to place risks, which limits the exposure of the UK market by spreading the risk more widely across Europe.
Members have also flagged that passported capacity is often required in the areas of:
- Insurance backed guarantees
- Product failure type risks and also protected cell / self-insured arrangements which typically cover short tail, smaller, liability risks
- Latent defects
- Building warranty. Warranty type Insurance is also often purely from passported markets e.g. to cover damp proofing products they sell to contractors who installed on site
- A very specialist market where passported capacity is required includes medical malpractice for facial aesthetics clinicians operating in clinics in Switzerland, Spain and France
- Some legal indemnity markets (principally affecting Zurich Insurance)
- Distressed classes such as empty buildings, nightclubs and very soon cladding contractors PII
- Solicitors professional indemnity insurance
- Taxis in certain inner city areas
These are all markets where there is a limited number of carriers and where passported capacity plays a significant role in generating competition between an otherwise sparse number of insurers.
We are uncertain about the genuine benefit for our sector of the new “economic and regulatory arrangement” mentioned in the Paper. This requires further explanation.
Why is the UK Government not seeking a bold new agreement/treaty that will still effectively allow tariff free access/authorisation for the 2,775 UK Brokers who currently have passports to continue to trade in the EU?
The issue goes beyond the brokers who passport into the EU. Many UK brokers serve businesses that reside in the EU or have assets in the EU covered by policies issued and serviced from the UK. The lack of continued passporting or similar solution, such as mutual recognition, will result in fragmented and potentially inferior, more expensive insurance protection for EU and UK customers. How will UK insurance brokers be able to continue to service the 38 million EU customers after Brexit? It is still unclear from the White Paper, or follow-up conversations with Government departments.
As things stand, there seems to be only two ways forward, both at additional cost. First, the BIBA/WBN (Worldwide Broker Network) solution (putting UK brokers in touch with an EU broker where their customers reside) or second, firms may have to go to the trouble and considerable cost of setting up a separately capitalised entity with regulatory approval in the EU. Both of these options will adversely affect the UK’s competitiveness.
TEMPORARY PERMISSIONS REGIME
BIBA welcomes the UK Government’s and UK regulators’ plans for a temporary permissions regime for inbound passporting EEA firms to continue to access the UK market and so honour commitments to their UK clients.
Full details can be found here
The White Paper proposes an ‘expanded equivalence’ regime, but the Insurance Distribution Directive (IDD) makes no provision for equivalence. BIBA would welcome urgent clarification on how the Government sees this working for our sector.
Existing equivalence is cancellable with a totally inadequate 30 days’ notice. This is unsuitable given that insurance contracts are usually annual or multi-annual policies. As the White Paper proposes a structured withdrawal process around equivalency decisions, BIBA urges the Government to be alive to the annual and sometimes even longer durations of insurance contracts when agreeing what notice period(s) the UK Government may accept as appropriate.
A structured withdrawal process would mean that the EU would still have autonomy to decide if equivalence was no longer achieved, whilst allowing that trading partner a reasonable and fair time period within which to adjust to the new position.
The White Paper includes within it a title ‘there might be transition period’. This uncertainty leaves millions of customers, who will have policies that straddle the exit date or may need to be called upon after EU exit, in limbo. For the sake of certainty, we believe that rather than an extension of the transition period, that ideally an extension to the Article 50 deadline would be the best solution, because no deal would be disastrous for clients, the economy and UK firms. This would be helpful until we can agree on a series of solutions that the UK Government, Europe itself and UK businesses feel is a sensible way forward. BIBA is concerned that in the event of ‘no deal’ there is therefore no transition period.
BIBA welcomes the proposal on page 34 to continue the European Health Insurance Card.
BIBA agrees with the sentiment that there must be no hard border between Northern Ireland and the Republic of Ireland or Northern Ireland and mainland Great Britain.
WHO IS SAYING WHAT?
The European Commission paper of 19 July 2018 ‘Preparing for the withdrawal of the United Kingdom from the European Union’ http://europa.eu/rapid/press-release_IP-18-4545_en.htm gives no comfort on insurance contract continuity.
The FCA gave a speech on 19 July 2018 regarding Brexit preparedness which members can access here https://www.fca.org.uk/news/speeches/fca-approach-brexit-our-preparations-and-our-vision-future
Members are also encouraged the see the three EIOPA opinions of 11/07/17, 21/12/17 and 21/06/18:
- Opinion on service continuity in insurance in light of the withdrawal of the United Kingdom from the European Union 11/07/17
- Opinion on service continuity in insurance in light of the withdrawal of the United Kingdom from the European Union 21/12/17
- Opinion on disclosure of information to customers about the impact of the withdrawal of the United Kingdom from the European Union 28/06/18
Government’s White Paper can be accessed here