Brexit is coming. The people have spoken. And it’s time to ignore the prophets of doom.
The financial services sector is a results business and there has been enough bleating. In the wake of Brexit, we don’t need sheep, we need leaders. So, insurers and the financial services sector must stop panicking and get on with making the best of Brexit.
For every crisis there is an opportunity, and there is no need for the UK’s financial services sector to talk itself into a self-inflicted recession because that’s the last thing anyone needs. The protection insurance sector in particular is only just recovering from the last one.
Insurers, as major institutional investors and financial institutions that take a long-term view, have a vital role to play in acting swiftly and decisively to safeguard jobs and work with politicians to ensure UK insurers get the best deal possible under Brexit.
What is needed at insurers and all financial institutions is leadership now and cool heads. That’s why it’s great to hear
Lloyd’s chief executive officer Inga Beale believes that Lloyd’s and the London insurance market will adapt to the new environment after the UK has officially left the EU and that London can maintain its position as the global heart of specialist insurance and reinsurance.
Areas for attention
- In the new risk environment of Brexit, insuresrs must protect against stress on capital and credit positions resulting from market volatility.
- It is therefore critical for insurers to monitor economic and political trends and contagion in other markets, which Life Insurance International as the only publication covering the global life and health insurance and reinsurance market is ideally positioned to do.
- Insurers will also need to consider the need to restructure UK operations, in the light of negotiations on passporting arrangements and tariffs.
- As a recent Marsh paper points out, insurers should therefore analyse likely changes in regulatory regimes on capital requirements and operational constraints, to inform industry consultations.
- Finally, with potential UK labour market constraints, insurers need to monitor this and impacts on pay deals.
The right of insurers and brokers to passport into the EEA could indeed be restricted following the UK’s two-year transition period.
This means insurers wishing to carry on business in other EEA states may be required to obtain licences, or form a new legal entity based in the state.
Equally, Marsh points out EU insurers may need an additional licence to carry on insurance business in the UK, or to form a new UK entity.
We could also see some major insurers with UK operations establishing a greater presence in continental Europe, in order to operate more easily under a single licence.
Dublin, with its large financial services centre would be an obvious beneficiary and I expect many insurers to consider relocating there.
There is also a lot of concern in the insurance industry that approaches to a number of major pan-European regulatory regimes. most notably Solvency II, will need to be negotiated.
Solvency II impact from Brexit
Solvency II will almost certainly remain in my opinion as too much time, money and effort has been invested and the regulation is enshrined in UK Law.
Marsh also points out that insurers may additionally be affected should the Freedom of Services Directive – the right to provide services on a cross-border basis within the EU – cease to apply to the UK.
For insurers, this directive is significant as it means that a contract can be underwritten in an EU member country that is different from that in which the risk is located, and it enables multinational companies to secure locally admitted coverage in multiple EU countries.
Additionally, there is a risk that UK legal judgments may no longer be enforceable in the rest of the EEA.
As Giles Williams, partner, financial services regulatory centre of excellence, EMA Region at KPMG, says the financialsServices industry needs to quickly develop its ‘asks’ of politicians to make sure that financial services can continue to play its crucial role in the wider economy.
As Williams argues, it is critical that the negotiating teams fully understand the implications and consequences of dislocating European capital markets, banking, insurance and asset management on the economy both here in the UK and in Europe.
In my view, we must end the ideological-driven debates, over the EU and Brexit, which have become increasingly poisonous. The referendum and Brexit result risks creating a ‘them and us’ attitude which only divides us.
We have far more in common than ever divides us. It’s high time to have a can-do attitude and make things work – and insurers can, and should, lead the way. Keep calm and carry on.