The recent statement from the EU’s financial services chief that there are no guarantees that insurance policies will not be affected by Brexit would not have been welcomed by risk managers with global insurance programmes.
One of the most important elements of such programmes is seamless coverage and contract certainty. Ensuring claims can be paid is clearly a vital part of a global programme and much time and effort goes into ensuring that nothing stands in the way of claims being paid in the territories covered by the programme. So the idea that claims relating to policies written prior to Brexit might not be payable is a major concern.
Clearly, the Brexit transition agreement will give firms and regulators time to resolve the Brexit concerns of insurance buyers, and the Bank of England (BoE) has reassured insurers and banks that it should be business as usual during the Brexit transition period. The BoE said it is reasonable for firms currently carrying on regulated activities in the UK by means of passporting rights, to assume they will be able to continue undertaking these activities during the transition period in much the same way as now.
And the Financial Conduct Authority said the transitional arrangement provides an opportunity for EU and UK regulators to collaborate and enact solutions to issues, such as the ability of insurers to pay claims and accept premiums for cross-border risks after the UK leaves the EU in March next year.
However, this has been thrown up in the air by the comments reported by Reuters from Valdis Dombrovskis, vice-president for the euro and social dialogue, and in charge of financial stability, financial services and capital markets union, saying there are no guarantees and it is up to firms to take preventive measures.
Reuters explained that Britain and the EU have agreed a ‘standstill’ transition period whereby EU rules remain in force in Britain until the end of 2020, which would ensure continuity in cross-border financial contracts like insurance policies. But this transition is part of Britain’s broader EU divorce settlement, which is still being negotiated and will not be legally watertight until October or later. It added: “Without transition, it would be illegal in some cases to make payouts on insurance contracts or amend derivatives contracts after March.”
Many UK-based insurers, but not all, are creating EU subsidiaries and looking to legally transfer policies to legal entities in the EU, to ensure continuity of contracts.
“In a recent speech, Theresa May, UK Prime Minister, effectively ruled out a continuation of passporting on the grounds that it would require the UK to continue to adhere to certain EU rules. Clearly this could present a challenge for global programme clients, but we have taken steps to ensure that we will continue to be able to passport whatever the outcome of Brexit.”
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