Brexit has caused plenty of uncertainty in Britain, as many UK-based organisations, particularly those with trade in the rest of Europe, speculate how the upcoming split from the European Union could affect their business.
The UK Finance Minister, Philip Hammond, wrote in a letter to Nicky Morgan, the Treasury Select Committee chair: “The government is alive to the risk that the UK’s withdrawal could, in some cases, create legal uncertainties as to the status of existing cross-border insurance… and other financial services contracts sold under passporting arrangements.”
The concern extends to the insurance policies that run beyond the point of Britain’s proposed exit from the European Union in March 2019, with many cautioning that a possible hard Brexit could adversely affect a number of areas within the financial sector.
In August, the Association of British Insurers (ABI) released a warning of the legal complications that Brexit could cause around cross-border insurance contracts. The trade body advised that insurers should act promptly, and no later than November, to ensure the necessary proceedings are conducted to implement the essential insurance policy transfers for their clients.
Yet Hammond highlighted: “The government has been actively engaging with the financial services sector – including the insurance and pensions industry – to understand how the UK’s exit from the EU could impact financial services firms and their customers, including through the effect of withdrawal on existing contractual relationships.”
Now, the Bank of England, Financial Conduct Authority and the Prudential Regulation Authority are working closely together with firms and financial market infrastructure to ensure in-depth plans are implemented to cover a variety of possible outcomes of Brexit; yet, there is still some uncertainty for both the insurance companies and their policyholders.
However, Hammond clarified the government’s plan to ensure a stable Brexit on cross-border relations in his letter:
“There is a shared interest for both the UK and the EU in ensuring that we avoid outcomes that impose unnecessary costs and disruption on individuals and businesses as the UK leaves the EU. What the final EU-UK relationship looks like will be a matter of negotiation, but we are ambitious in our aim to secure a bespoke and reciprocal arrangement that preserves the greatest possible market openness.
“The government is clear that, whatever the ultimate outcome of the negotiations, an integral part of delivering our withdrawal will be the negotiation of a time-limited interim period, to provide certainty and avoid a cliff-edge for business and individuals during the transition from the current structures of membership to the new relationship.”
Yet, these comments do not confirm whether the contracts of cross-border insurance will be honoured after Brexit to ensure they are legally binding. The worry is that many contracts, to the disruption and cost of policyholders, will have to be moved to ensure the insurance policies are within the same jurisdiction. In light of this, many insurance brokers have secured or are looking to secure offices in other European jurisdictions to ensure there is little effect on the cross-border insurance packages held by their policy-holders.
ABI Director Huw Evans said back in August: “As the deadline for Brexit looms, many insurers’ biggest fear is that they will be left with a stark choice between breaking their promise to customers or risk breaking the law if the issue of how to fulfil existing contracts cross-border is not resolved.”
In regard to Brexit and cross-border insurance, the ERAICM are monitoring developments closely. The insurance specialists at Expense Reduction Analysts are in continual dialogue with brokers and insurers alike to ensure we are kept abreast of the next steps being taken to manage the transition; therefore, our experts are able to provide continued guidance and support should businesses require it. If you are a UK business concerned about your insurance policies, get in touch with us today. Our business cost management services are second-to-none, providing businesses with the necessary support to improve their organisations.
Article by: Chris Coomber