As 2020 draws to a close, Brexit is firmly back on the radar as a concern for businesses across Europe, and the insurance industry is no exception. With the end of the transition period rapidly approaching, the UK is on course to become a third country after 31 December 2020.
The UK is currently seeking to negotiate a Free Trade Agreement (FTA) with the EU but it’s not clear whether this will be agreed by the end of the transition period and, even if agreed, whether it will be comprehensive. So, what could this actually mean for entities based in the UK looking to write insurance across continental Europe?
Regulated businesses including insurance companies will be among the hardest hit if a comprehensive FTA isn’t agreed. Many have already taken steps and implemented contingency measures to ensure they can continue to trade post-Brexit. For instance, over the last two years many insurers have pre-emptively set up additional legal entities both in the UK and Europe to ensure their ability to write premiums isn’t impacted by adverse Brexit scenarios. The countries to most benefit from UK insurers’ Brexit strategy have been Ireland and Luxembourg. Both countries have welcomed several big London players as they set up subsidiaries in Dublin and Luxembourg city. The same applies for the Netherlands who is the domicile chosen by P&I clubs along with Ireland to house their post-Brexit subsidiary. Conversely, France and Germany have failed to attract a significant number of UK insurers.
Also, what is still unclear is how a FTA (or lack of) will impact passporting rights, which allow UK intermediaries to place certain European risks with insurers. This could ultimately result in no changes to the current rules or lead to a fundamental shift to the structure of how intermediaries place risks in Europe from next year.
In addition to this, the UK government is planning post-Brexit changes to some of the most contentious aspects of insurance regulation in a move likely to signal a departure from EU rules. For instance, currently UK insurers must comply with Solvency II, the EU’s insurance capital regime, which came into force in 2016. However, once the Brexit transition period ends on 31 December, the government will be free to set its own regulations. This may result in a relaxation of some of the capital rules associated with Solvency II, however no outcome here is certain.
With all the above in mind, unfortunately the conclusion you might draw is that nothing is certain with regards to how insurance companies may be able to operate in a post-Brexit world. Against this shifting and uncertain backdrop, it’s more important than ever to partner with a specialist provider of compliance and advisory services who can advise on risks specific to your business, as well as offering potential solutions.
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