Brexit – what it means for your insurance programmes
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.
Buyers of corporate insurance with operations in the UK or policies underwritten in London should be able to get continuity of cover , whatever the outcome of Brexit, provided they take certain steps.
In September Airmic held a seminar for senior risk managers to discuss the insurance implications of Brexit. Although the industry is working hard to minimise the impact of Brexit, buyers need to understand some of the potential pitfalls. The timescale will depend on whether the current draft Withdrawal Agreement goes ahead. If it does, the current arrangements will continue until December 2020. If not, they will end on March 29, 2019. Below are the main points to emerge from the event.
• The EU has rejected the idea of a mutual recognition arrangement for insurance that would have enabled cover for operations in the EU to continue to be written in London. In response, insurers have opted for a number of alternatives.
• Around 36 UK-based insurance companies are setting up subsidiaries in the EU to enable them to provide continuity of cover. These are expected to be ready when Brexit happens at the end of March.
• There may, however, be a delay before these subsidiaries receive their agency security ratings, potentially affecting bank loans that are contingent on companies' securing insurance with a certain level of security.
• Servicing claims post-Brexit. This is obviously a big concern for corporate insureds. Many insurers are using a device known as a Part 27 Transfer to enable them to continue to pay claims. Where they have not made suitable arrangements, buyers should consider the use of continuity clauses. For more information on this, click here.
• Lloyd's has chosen Brussels for its subsidiary, where it will be allowed to reinsure 100% of its risks back to its London base. This will ensure consistency of security.
• Instead of establishing subsidiaries, some smaller insurers plan to have fronting arrangements with local carriers.
• EU-based insurers with operations in the UK will have at least two years post-Brexit to make the necessary changes.
• London market brokers have been slower to make their Brexit arrangements, largely because they have been waiting to see how the Insurance Distribution Directive plays out. Buyers need to keep an eye on their brokers' progress.
• Captive insurers will also be impacted by Brexit. Click here to read a recent article on this subject.
• UK government has announced that if necessary, it will create a temporary permissions regime (TPR) which would allow EEA insurers to continue providing services after Brexit for up to 3 years.
• EU27 branches are applying to the prudent regulatory authority (PRA) to obtain authorisation as a 3rd country branch. Aspects of this position still need further definition as to UK capital requirements, branch assets and liabilities and to extent to which governance functions can be operated from head office
• It is likely EU companies protected by the Financial Compensation Service with over £500m of liabilities will be expected to set up UK companies instead. This would entail the creation of a Board of directions, the transfer of existing business to the new legal entity and additional capital.