29 June 2016

Commercial Risk Europe: UK risk and insurance managers have battle ahead following Brexit

UK-based risk and insurance managers will need to deal with material changes to their companies' risk profiles and strategy, market volatility, regulatory and legal challenges, plus potential upheaval in the insurance market following Brexit, according to Marsh.

In advice to clients following the UK referendum result, Marsh said companies will now need to consider the impact of Brexit on a range of risk and insurance issues.

It stressed that the UK's decision to leave the EU could cause key aspects of an insurance buyer's business, or planned transactions, to change. This could result in a material change to the buyer's risk profile, it added. For example, some companies may look to defer projects until there is greater certainty in the marketplace.

UK companies and their risk managers will also have to deal with market turmoil over the short term. Following initial depreciation in the pound, further currency volatility can be expected over the next few weeks and as negotiations on the UK new relationship with the EU is carried out. This could cause stress on capital positions, leading to possible credit ratings downgrades for insurers and other financial institutions, said Marsh.

There is also the risk that overseas investment in the UK will be affected. "In the early days post-referendum, there is likely to be continued speculation about the UK's ability to attract overseas investment during this period of transition. It is difficult to forecast the extent and longevity of this uncertainty as the exit negotiations continue," said Marsh.

Furthermore, it warned that the UK's decision to leave the EU may prompt other EU countries to hold referendums on continued membership, which would have additional serious implications for the European economy.

UK firms will also have to deal with likely changes to freedom of movement. As Control Risks pointed out, Brexit means there will likely be a "significant shift in UK immigration policy within the next few years, which is likely to impair hiring by multinational companies".

Brexit will also trigger changes to the UK's legal and regulatory environments, said Marsh. This will impact many UK companies and has particular implications for insurance.

Brexit could create passporting issues for insurers and brokers into the EEA. Passporting allows insurers and brokers to carry out business from a single country licence into the EEA and could be restricted following the transition period, noted Marsh.

It is possible that some insurers with UK operations could establish greater presences in continental Europe in order to more easily operate under the single licence, particularly those insurers who currently make extensive use of the passporting rights, said Marsh.

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