As British Prime Minister Theresa May fights to negotiate a Brexit deal that will command a majority in parliament before the UK crashes out of the EU on 29 March, StrategicRISK speaks to an expert about the potential impact on insurance buyers.
The British Parliament has loudly rejected the prospect of a no-deal Brexit however it has also said no to an earlier deal tabled by May.
And with a second vote or extension to the negotiating period seeming less-and-less likely, it could come down to deal or no deal. So what does that mean for you?
A lot of firms have prepared for a hard Brexit and restructured their operations accordingly, says Jane Portas, a partner at PwC who is an expert on how Brexit will affect the insurance sector.
Ensuring you’re insured
For UK insurers, that has - in most cases - meant creating a subsidiary in Europe, while the larger continental carriers have all set up entities in London. Brokers have done the same.
For risk managers looking after non-European exposures either in the UK or across the globe, it will be business as usual. However, things could be a little more complicated for British firms with operations on the continent.
Many multinationals will have dozens of policies offering broad coverage in countries around the world, including some in the EU. For those clients, insurers and brokers will try to understand their risk profile and the geographic makeup of their portfolio to make sure that it is placed and written in the right region, in line with potential future regulatory changes after Brexit.
“If they are planning on a hard Brexit then they would obviously be placing the European risks via the European entities,” Portas says.
There are two sets of regulations that insurance businesses need to be aware of. One is Solvency II, which governs underwriting standards, allowing insurers to commit to risk under passporting arrangements across the EU. The other is the insurance distribution directive and that deals with licensing and passporting for brokers. “It only works if both parts work,” Portas says.
And how that works following a hard Brexit really depends on whether the UK can agree on a permanent extension to the current arrangements.
If they can’t, it will put a lot more pressure on risk managers as well as their brokers and insurers.
To me, to EU
Without a free trade agreement between the UK and the bloc a firm’s risks would need to be split between the UK and the EU. The exposures on the continent would need to be brokered and written by EU licensed firms, while those in the UK have to be dealt with locally.
“They would have to remap those transaction flows and underwriting processes so that they’re doing the right activities in the right places according to the rules,” Portas says.
“What that means in practice - in the hardest possible outcome - is that those organisations with European risks will be having them placed and underwritten through platforms in Europe.”
Portas says that risk managers will primarily be looking at the effect Brexit is likely to have on the risk profile of their own businesses. Then they will look at the relationship they have with their brokers and insurers to ensure that they have continuity of cover.
To that effect, she says: “First of all, you’ll want to make sure that the cover you’ve got in place that straddles the Brexit date is going to operate effectively - so if you have a claim post Brexit that is going to get paid out.”
“Secondly, you should be thinking: ‘how should I be engaging with my brokers and my underwriters in the post-Brexit environment’.”
To understand that she says it is best to look the way that works for other international risks.
“People have a multinational policy and they provide the different parts of that global cover through the relevant underwriting platforms in the relevant geographical locations and then compile that as a single package of cover.”
She says that the “big difference” is that where UK firms may once have bought a pan-European cover from a single insurer, in the case of a hard Brexit with no trade agreement, they would have to buy from two carriers, a UK one and another in the EU. But that should fall to the broker.