Robert Gothan, CEO and founder of Accountagility – a solutions provider for the finance function – argues that the sheer complexity and uncertainty of the Brexit process means that planning for a range of future scenarios has never been more important, particularly in the case of insurance firms writing business across the EU.
Since the EU Referendum last year, UK businesses have been shrouded in uncertainty in terms of how, and indeed when, the process for the UK to formally leave the European Union will begin. With Brexit still dominating news headlines on a daily basis, lack of clarity on the outcome has been a nightmare for insurance firms operating across Europe.
Nine months after the UK voted to leave the EU, Theresa May will formally serve notice that it intends to do just that by invoking Article 50 of the Lisbon Treaty on 29th March.
Yet still uncertainty remains. Once Article 50 is triggered, the UK will enter months, if not years of negotiations with the EU as to its status within Europe.
The formal process will take up to 24months following this, so that Britain would officially exit the EU at the start of 2019.
But the sheer complexity of the task could elongate the process, and some commentators are predicting an extension of the two-year negotiation period, taking the exit into the 2020s. The question is therefore more relevant than ever: how can a business prepare for the unknown?
The importance of agility
Planning for a range of future scenarios has never been more important, particularly in the case of insurance firms writing business across the member states of the European Union.
More than anything else, the aftermath of the vote has highlighted the need for insurance firms to have powerful, agile planning systems that are able to rapidly re-model forecasts and plans, and allow many potential scenarios to be run at the same time.
Not only will this increase business intelligence within an organisation, it will also enable the firm to react quickly to any unforeseen consequences following Article 50’s invocation.
This is especially true for larger insurance firms, whose technology is often dominated by outdated legacy systems, unable to cope with the constant state of flux within the current economic climate.
By introducing planning tools which will be able to plan flexibly, and adapt plans on a regular basis in line with incoming information, insurance firms will have the upper hand when it comes to post-Brexit planning.
Insurance firms in the UK will retain access to the single market until formal negotiations to leave the EU have concluded. Whilst it may seem to be a state of ‘business as usual’, firms must continue to monitor any international activities closely.
For firms operating Europe-wide, there are clear concerns over whether to move parts, if not all of the British operation to a more central European hub.
Some financial services players have already made decisions on this matter, with Goldman Sachs and insurer AIG already announcing plans to move some operations to Europe.
But a majority are still holding out, awaiting clarity on the new regulatory framework before making these major decisions.
Planning for the unknown
As these Brexit-influenced changes continue to take shape, insurance firms must keep adapting their plans for all possible outcomes, taking a number of factors into account each time.
Naturally, income streams and exchange rates are one such factor. Exchange rates have become incredibly unstable following recent global events, with the value of Sterling in particular fluctuating at an unexpected level.
To cope with this, insurance firms must consider a planning solution which allows for this volatility. The invocation of Article 50 could well trigger another forex upheaval, and firms must be able to adapt plans quickly to these sudden shifts.
Another important consideration for the insurance sector in particular will be potential large-scale changes to regulation and compliance requirements post-Brexit.
Directives and legislation coming out of the EU – such as Solvency II – could be removed and replaced by UK-specific regulations. With this in mind, any costs required to alter computation models, hire new staff or introduce new technology altogether must be accounted for.
Whilst the fall-out from Article 50 remains unknown, insurance firms must take another look at their technology and judge whether it is adequate to cope with the shifting economic climate.