Dave Matcham, chief executive of the International Underwriting Association, looks ahead to a post-Brexit environment.
Much effort has been expended by London Market insurance companies preparing for the possibility of a UK withdrawal from the EU and reversion to a trading relationship based on World Trade Organisation (WTO) rules. Firstly, in anticipation of a 2019 March 29 deadline, then October 31 and now the end of 2020.
Such prevarication has, of course, been frustrating, but the extended timeline has at least meant that firms are well positioned to react to whatever outcome arises from the trade negotiations conducted during 2020’s Brexit transition period.
Ideally, the London Market would like to see a deal agreed that encourages, as much as possible, cross-border trade in insurance services. A free flow of business between the UK and EU enables a more efficient marketplace and better service for clients.
Equivalence alone is not enough
Both sides, however, appear to be relying on existing systems of equivalence rules to govern future business operations. This presents difficulties as the equivalence regime is limited to certain types of business and does not encompass the work of insurance brokers. For maximum benefits an enhanced system of equivalence is required. This could be developed from existing precedents to cover at least the insurance of commercial and wholesale risks that have quite different client profiles to retail business.
A confirmation of existing equivalence rules, whilst welcome, would be of more limited value. In addition to the restricted scope of the current regime there is the problem that it could be unilaterally rescinded at quite short notice. This does not allow companies to plan, operate and invest with any long-term security. It would be desirable, therefore, for the EU and UK negotiators to agree a more stable and extended notice period for any future changes.
New European relationships emerging
Without a prominent role for financial services in any EU-UK trade agreement, the individual arrangements IUA members have made for continuing to serve their clients will be vital. These are extensive with new entities established and existing operations expanded across the remaining EU 27 states. Many are already operating effectively and, ironically, have resulted in reports of London Market firms seeing more continental European business and competing more closely for new customers than if Brexit had not occurred.
As we move into a post-Brexit environment attention will also turn towards other international opportunities and the chance for the London Market to work with the UK Government on enhancing trade relationships across the globe. The IUA believes in taking an ambitious approach to these potential openings. Indeed, a significant amount of preparatory work has already been accomplished, both in replicating agreements concluded by the UK as a member of the EU and in laying the groundwork for future independent trade talks.
The IUA has participated in discussions with government officials about how these deals could develop in the future. Our members are supporting efforts to develop trade agreements by highlighting the particular priorities and requirements of our sector. We will continue seeking to liberalise international markets and focus attention on how the insurance industry can support economic growth and resilience across the world.
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.
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