Britain’s currency has fallen off a cliff and global markets are panicking on the back of the vote

UK flag

The UK has voted by a narrow margin to leave the European Union after 43 years.

In a historic margin, the ‘leave’ campaign took 52% of the vote to secure the win at yesterday’s referendum.

London and Scotland voted strongly to stay in the EU, while voters in Wales and the English shires backed Brexit in large numbers.

The pound fell to its lowest level against the dollar since 1985 and markets around the world have reacted to the results.

Prior to the referendum, StrategicRISK Europe produced a special report on the key risks of Brexit.

Click here to read the predictions from leading experts on the potential impacts on global economies, trade, regulation, risk and insurance industries of the historic vote.

Britain is the first country to leave the EU since its formation. But it could take at least two years before it ceases to be a member of the 28-nation bloc.

Prime minister David Cameron will have to decide when to trigger Article 50 of the Lisbon Treaty, which would give the UK two years to negotiate its withdrawal.

Once Article 50 has been triggered a country can not rejoin without the consent of all member states.

The economic, trade and regulatory impacts of the vote are huge.

The UK government will now have to negotiate its future trading relationship with the EU and fix independent trade deals with non-EU countries. The UK will also need to seperate itself from more than 40 years of EU law, deciding which regulations to keep, amend or ditch. 

Millions of migrant workers in both Europe and the UK will be also affected, having previously been able to live and work freely between borders.

Insurance implications

The insurance industry is likely to suffer in the short term under a Brexit reality.

In a recent speech to the Insurance Institute of London, Lloyd’s chief risk officer Sean McGovern said Brexit does not offer a route to “insurance regulatory nirvana”, as the UK regulatory system has been largely driven by domestic political and regulatory concerns and cannot be blamed on Brussels.

An equivalence finding under Solvency II does not provide a solution either, he added. “The UK would, under EU parlance, be a ‘third country’, and whilst it may be found to have a regulatory regime that is equivalent to Solvency II, that does not confer a right to access the EU market, either on a cross-border or on a branch basis.”

McGovern said the UK’s membership of the EU is key to Lloyd’s future growth and its competitive position as part of the global insurance market.

While he stressed that the best scenario would be for the UK to remain in the EU, McGovern said Lloyd’s has been working on contingency plans to deal with a range of possible scenarios.

“In the event of a vote to leave, we would work with the UK government and EU institutions during any negotiations to retain market access for Lloyd’s and the London market and create as much regulatory certainty as possible,” he said.

McGovern added that Lloyd’s had examined all alternatives to the UK’s existing relationship with the EU if Britain votes to leave.

“There is real uncertainty about what those alternatives might be and what will be politically and practically achievable after a vote to leave. What we do know with certainty, however, is that none of the alternatives will be as beneficial for the London market as the current relationship.”

In a StrategicRISK European poll earlier this year, two-thirds of risk managers said they did not believe their companies would be affected at all if the UK were to leave the EU. Only 25% think they’d be severely affected by a British exit and 8% say they’d be barely affected.

Prior to the vote, brokers were divided on assessing the impact of Brexit on insurance buying habits, a poll by law firm BLM has found.

According to 42% of respondents, Brexit would have no impact on insurance buying habits, while 40% think it would. The remaining 18% are unsure.