This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies. 

Insurers’ ability to pay claims on policies written before Brexit on a cross-border basis remains a question of great uncertainty. Greig Anderson and Alison Matthews, both of law firm Herbert Smith Freehills, explain the latest situation.

It is now almost three years since the UK referendum on EU membership.  Nonetheless, at the time of writing, the terms on which the UK will leave the EU remain unresolved.  The UK parliament’s failure to ratify the deal agreed by the UK government with the EU means that businesses are still unsure whether the UK will leave the EU with a deal providing for its transition from member to non-member.  They have been left with little alternative, therefore, but to plan for a “no deal” scenario, which could come as soon as 12 April.

In the (re)insurance sector, leaving without a deal raises a question for many UK (re)insurers whether, post-Brexit, they can continue paying claims under policies written before Brexit on a cross-border basis into the EEA.  This is a possible consequence of the loss of passporting rights that a “no deal” Brexit would bring and has led to the introduction of so-called “Brexit continuity clauses” (see previous guidance provided to AIRMIC members on the use of these clauses here).

The same issue arises for EEA (re)insurers currently passporting into the UK although the UK’s introduction of a Temporary Permissions Regime (“TPR”) is expected to alleviate their position.  In summary, EEA (re)insurers that opt into the TPR are deemed to have the authorisation needed post-Brexit to carry on (re)insurance business in the UK pending their obtaining full authorisation from the Prudential Regulation Authority.

Recommendations issued in February 2019 by the European Insurance and Occupational Pensions Authority (“EIOPA”) emphasise the importance of safeguarding policyholders in the event of a “no deal” Brexit.  EIOPA urged EEA states to help UK (re)insurers meet their obligations to EEA policyholders, while also acknowledging that it was a matter for individual states to decide how to react.

Specifically, EIOPA encouraged EEA states to establish mechanisms enabling UK (re)insurers to run off their EEA business despite the loss of passporting rights or to require them to take immediate steps to become authorised.  This would ensure that claims made by EEA policyholders could continue to be met.  UK (re)insurers should not, however, be able to write new business without obtaining a suitable EEA authorisation.  New business would include, for these purposes, renewals, extensions or increases in cover.

EIOPA gave national regulators two months to respond to its recommendations, which means they have until later this month to reply.  A number of jurisdictions have already published transitional measures designed to cover a “no deal” Brexit.  In most cases, they will allow UK (re)insurers to continue servicing cross-border policies written before Brexit, including paying claims, for at least a period of time.  The difficulty for policyholders and UK (re)insurers is that the precise approach adopted in each jurisdiction varies.

Ireland, for example, has introduced legislation that allows UK (re)insurers to pay claims on so-called “legacy policies” for up to three years after the UK’s withdrawal from the EU.  The equivalent length of time in Italy is 18 months, although individual (re)insurers can apply for an extension provided that they include supporting evidence with their application.  Whether this is long enough will vary for different types of policy but it does, at least, provide UK (re)insurers with some breathing space.

Germany, France, Spain and Belgium are amongst the other EEA states to have introduced transitional regimes for the ongoing performance of legacy policies by UK (re)insurers.  Because each of the regimes is different, UK (re)insurers seeking to rely on them will need to ensure that they meet any relevant conditions and that their actions fall within their scope.

In summary, therefore, the issue of contract continuity, and the potential use of Brexit continuity clauses, should still be subject to careful consideration for the time being.

Greig Anderson is a partner in Herbert Smith Freehills’ Insurance Disputes team and Alison Matthews is a Consultant in the firm’s Corporate Insurance team.

Read related articles from the FERMA-Airmic Brexit newsletter:


Access all the other articles from the FERMA-AIRMIC Brexit Newsletter