The Financial Conduct Authority has published near-final rules and guidance that will apply in the event the UK leaves the EU without an implementation period. As most of the changes proposed will be made under powers given to the FCA under the EU (Withdrawal) Act, they are subject to approval by the Treasury.
Earlier this week, the FCA published information for general insurers and intermediaries in the UK:
Information advisory - Brexit: information for general insurers and intermediaries in the UK
UK-based general insurers do a significant volume of business with customers in the European Economic Area (EEA). If the UK leaves the EU without a withdrawal agreement (a no-deal Brexit), a key focus for the sector is to minimise the disruption for EEA-based customers (including expats), or policies with certain EEA risks, that might be caused by a no-deal Brexit. Firms should also ensure that their UK customers understand if their insurance policies are affected and are treated fairly. Motor insurers should inform consumers of the necessity for green cards, ensuring they communicate in enough time for customers to be able to receive one before exit day if required.
Servicing your EEA customers in a no-deal scenario
UK insurers and insurance intermediaries should already have made plans for their EEA customers to continue to be covered in a no-deal scenario (which will result in the loss of the passporting regime). Many firms are planning to move EEA customers’ policies to an EEA entity, for example by means of a Part 7 transfer.
If you have customers based in the EEA, you will need to decide on your approach to servicing your existing contracts with them. You should take the steps available to you to continue to service customers in accordance with local law and national regulators’ expectations.
The European Insurance and Occupational Pensions Authority (EIOPA) has published recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union (link is external). The recommendations are addressed to national regulators and aim to minimise detriment to policyholders and beneficiaries in a no-deal scenario.
EIOPA recommends that for insurance firms with EEA consumers (including UK expats) who took out certain types of general insurance contracts while resident in the UK and have since moved to the EEA, those contracts should not be regarded as cross-border business. We welcome this recommendation. However, firms should be aware that whether you need regulatory permissions in a local EEA jurisdiction will ultimately depend on local law and the approach of the local authorities in that jurisdiction.
We are clear that firms’ decisions need to be guided by what is the right outcome for their customers. We have given our public support to the statement by Lloyd’s of London (link is external) that, in a no-deal scenario, Lloyd’s underwriters will continue to honour their contractual commitments including the payment of valid claims, while its Part 7 transfer is completed.
Business transfers
For those firms which consider that it is too late to make a Part 7 application now, the UK government is legislating (link is external) to extend the timeframe for completion of the Part 7 process for applications initiated before 29 March 2019. EIOPA recommends that national regulators should allow the completion of Part 7 transfers, provided they were initiated before exit day. If you intend to submit a Part 7 application but have yet to do so, you should speak to relevant regulators, including us and the PRA, without delay.
Distribution
It is important that UK insurance intermediaries and brokers intending to continue their distribution activities to EEA policyholders for EEA risks, agree arrangements with local regulators and seek legal advice as appropriate. There are various models proposed for the continuation of this activity and it is a complex area. Making these arrangements is important both to ensure the continuity of service and to allow for sufficient time to take appropriate contingency steps.
Exiting business
If you have decided to stop servicing customers in the EEA after Brexit, we expect you to ensure your customers are treated fairly when winding down business. Customers should be informed in a timely manner of any such decisions and given clear and useful ‘next steps’ information and advice. For example, this may involve supporting customers while they are in the process of finding alternative providers. Brexit, in and of itself, should not be used as an excuse to off-load customers.
Travel insurance
We expect you to consider the potential impact of a no-deal Brexit on customers’ travel insurance contracts and contact your customers if they are affected by Brexit. We expect you proactively and clearly to communicate to customers any Brexit-related changes to their contracts; or if a travel policy contains a provision that would invalidate or limit a claim as a result of Brexit.
When it comes to claims for travel disruption, as with other types of cover, you must treat customers fairly and not unreasonably reject claims. This would include relying on provisions to reject or limit claims as a result of Brexit, where it would be unreasonable to do so in the circumstances, including how clear the relevant provision was to customers. You should be aware that consumer rights legislation makes clear that where there is ambiguity in a consumer contract, it will be given a meaning favourable to the consumer.
We have been clear that you should make sure you can address customer queries accurately, fairly, clearly and promptly. This includes preparing for the possibility that you may start to receive a significant increase in consumer queries.
Green Cards
Green cards are an international certificate of insurance guaranteeing that motorists have the necessary third-party insurance cover for travel. If the UK ceases to be a part of the European free circulation zone after exit, UK motorists would need to carry a valid green card when driving their vehicles in participating countries. We do not regulate the provision of green cards. But we do have a role to ensure insurers are meeting their obligation to pay due regard to the information needs of their consumers.
The ABI has issued guidance (link is external) on travelling to the EU in the event of a no-deal scenario.
We encourage you to take appropriate action. Motor insurers should inform consumers of the necessity of green cards in relevant countries. You should ensure you communicate in enough time, being clear about the process necessary to obtain a green card, for customers to be able to receive one before exit day if required.
Green cards may be invalid if they are not in the correct colour and format. You should consider consumers’ ability to obtain a green card in the correct colour and format and, where appropriate, consider proactively providing them to your customers. You should assess, and if appropriate, take steps to ensure that any operational changes necessary for the production of green cards are in place.
European Health Insurance Cards (EHIC)
The EHIC entitles individuals to state-provided medical treatment in EEA countries. EHIC provision will cease in a no-deal scenario. We do not regulate the provision of EHIC and we are not the appropriate authority to comment in detail on any changes to EHIC. Our focus is on how insurers communicate with customers about how Brexit affects their insurance. To the extent that the loss of EHIC has an impact on a customer’s insurance policy, we expect you to communicate this in a clear and timely way.