Make sure your insurance stands up post-Brexit


The Airmic Leadership Group held a summit to discuss measures being taken by the insurance market to mitigate the disruption caused by Brexit - and how risk managers can ensure their policies remain effective. The message from the panel of experts was an optimistic one - provided policyholders take certain precautions.

The insurance industry is working hard to ensure that policyholders enjoy the certainty and continuity they need, said Suzy Awford of AIG, and risk managers can be confident there will be a solution in place by the time of Brexit. The City had wanted a regime of mutual recognition, but the EU rejected this proposal as 'cakism'. Instead, insurers are seeking other ways to ensure that policyholders with operations in the EU continue to have cover. In the case of AIG that means setting up a subsidiary in Luxemburg to write the necessary business.

Benedict Reid of EY said that around 36 insurers had plans for subsidiaries in other EU countries, and risk managers can be "pretty well assured that these subsidiaries will be established." Similarly, the UK government was being accommodating to EU-based insurers with operations in the UK, which will have at least two years post-Brexit to make the necessary changes.

However, as Catherine Thomas of AM Best pointed out, some smaller insurers are looking for alternative arrangements such as relationships with local carriers to front insurance policies.  The most pressing concern for the UK insurance industry, she said, was the loss of passporting rights. Servicing claims post-Brexit would also be an issue. Many companies were using Part 7 transfers of their liabilities into their new subsidiaries to make this possible.

Brokers still to declare

London market brokers are a different matter, said Benedict Reid. Just one has announced publicly what it is planning to do post-Brexit, though there has been a lot of work behind the scenes. The delay is largely the result of uncertainty over how the Insurance Distribution Directive will play out. Nonetheless, risk managers should keep an eye on their brokers' Brexit progress.

Similarly, they need to look at the impact on Captives. (An article on this subject co-authored by Ben Reid appeared in last month's Airmic News).

Lloyd's well advanced but cost an issue

Keith Stern of Lloyd's said Brexit plans for the market were well advanced. Its newly established subsidiary in Brussels would reinsure 100% of its risks back to the Lloyd's market in London, so clients would continue to enjoy the same security rating as now. Fifty out of fifty-four managing agencies had signed up, whilst the other four had either made their own arrangements or had too little EU business to justify the effort. Plans for Part 7 transfers were also well advanced.

As for the cost of all this, the Lloyd's Corporation is taking the hit for the setting up. Going forward is a different matter, though. Lloyd's Brussels will charge 2.75% for its services. Whether managing agencies absorb these costs or pass them on will be a matter for their commercial judgement.

Continuity Clauses

Sarah Irons of law firm Herbert Smith Freehills advised the audience to consider continuity clauses and to discuss them with their brokers. As the name suggests, these are intended to ensure that policies provide continuity of cover where an insurer has not taken steps to ensure it can meet its obligations to policyholders in the event that the UK leaves the EU without suitable transitional arrangements being put in place or without an agreement allowing UK insurers to perform cross-border business into the EEA. 

Continuity of ratings

A member of the audience raised an issue that is likely to affect many Airmic members. Her company has bank loans contingent upon obtaining suitably rated insurance. How could she be certain that the insurance transferred to the new subsidiaries would enjoy the same ratings as before? Whilst this is likely, Catherine Thomas of AM Best made clear that the process of rating the new subsidiaries would take time and, until completed, there can be no guarantee as to the outcome.

The panel session took place before news that the EU summit in Salzburg had rejected Mrs May's Chequers Plan. This had been anticipated, though, by the opening talk given by Neil Sherlock of PwC, who predicted that any deal was more likely to be struck at a specially arranged summit in November. He expects there to be a withdrawal agreement in time for Brexit, which would see little change in the UK's relations with the EU in the short term. Getting a trade deal, by contrast, could rumble on for years.

Another member of the audience made the point that a lot of money was being spent on Brexit - not to improve the offering or customer value - just to keep the show on the road. True, but at least cover should be maintained.