Brexit is likely to be front of mind for many at the Monte Carlo Rendez-Vous this year so Kennedys’ head of corporate and public affairs Deborah Newberry explains some of the implications for insurers.
The insurance sector is a vital part of the UK economy and a huge global success story generating over £20bn annually in export earnings. This international exposure makes the sector particularly sensitive to the impact of Brexit and insurers’ attention is now rapidly turning towards the future UK-EU relationship.
Some of the immediate challenges facing insurers will arise from the impact on a number of areas covered by the single market, including data protection and management of cross-border flows. The direction of future regulation, the impact on UK law and the effect on workforces are also key.
The single market
The EU has been consistent in its response that leaving the single market will mean the loss of UK passporting rights. In the absence of clarity, firms are basing their actions on a working assumption that no deal on market access will be struck.
Post-exit day, and in the absence of passporting rights, EEA firms wishing to do business in the UK domestic market (or globally via the London market), will be required to apply to the FCA for authorisation. The UK government has signalled that it will, if necessary, legislate to provide a temporary permission regime for EEA firms passporting into the UK to enable them to continue to write new business and fulfil existing contracts while they are seeking full authorisation. This will provide some legal certainty but not without the costs associated with the authorisation process or a potential new barrier to trading with the UK.
Whilst the system of regulation which facilitates access to the EU may not be perfect, the regime is built on regulatory concepts which UK regulators have designed and advocated for. UK insurers have, overall, been supporters of the regime. We also already know that there will not be a regulatory dividend arising from Brexit.
In practice, we can expect to see a lot of regulatory change within the single market over the coming years: data protection and cyber reporting; new prudential rules on insurance brokers; conduct rules on retail insurance sales; and broader efforts to complete the single market for retail financial services. For the UK, ensuring market access will mean maintaining equivalence with these new rules.
However, that prospect raises an important question: how far should the UK be prepared to go in maintaining equivalence? If the UK should not become a rule-taker, that implies the potential for future regulatory divergence (and impact on market access) over time.
So what now?
The closer we get to the March 2019 exit date without having a legally-binding transition period agreed, the less valuable such a transition agreement becomes. Firms will be forced to plan on the basis that there will be a “no deal” scenario.
From the perspective of leading insurers, the current status quo represents the best outcome. If the UK is to leave the EU, and the status quo is not sustainable, then it must fall to politicians to recognise that access to the EU Single Market is a major part of the UK’s attractiveness as a destination for inward investment, particularly among US insurers.
The outcome of the debate surrounding that association is vital for the long-term health and success of UK insurers, as well as international insurers doing business in the UK.