Brexit will hit global programmes but no need for panic, advise insurers and brokers

Although the full implications of the UK’s referendum vote to leave the EU have yet to sink in, it is certain that global programmes written by insurers based in the UK, or written in the EU and covering UK risks, will eventually have to be restructured – or risk being non-compliant. Membership of the EU confers passporting rights on insurers based in the EU. This means that if an insurer is authorised in one EU country, it can conduct business everywhere else in the EU. At the time of going to press, the question of whether the right to passport will be retained hinges on whether UK politicians decide to negotiate an exclusion from the general principle of freedom of movement.hideIn a worst case scenario, London market insurers face the prospect of negotiating licences with every country in the EU. European insurers that operate in the UK will potentially face similar problems. If the right to passport is withdrawn, they will need permission to conduct business in the UK. Stephen Morton, head of AIG’s multinational risk practice for EMEA, told Commercial Risk Europe that a lot depends on the terms of Brexit. “However, whatever the outcome, UK insurers with an existing presence in other EU countries will continue to have options when it comes to continuing to meet their customers’ needs in a post-exit environment – provided they are proactive in adapting to the new reality,” he said. Multinational clients considering their current global programme arrangement, or thinking about implementing a programme soon, should have the option of being issued with a UK policy and a Freedom of Services (FoS) policy covering other European Economic Area (EEA) countries from another jurisdiction (or multiple local policies), Mr Morton added. This decision would need to be taken in conjunction with the client and their broker. “In light of the current situation, taking this course of action now could mitigate some of the uncertainty, while at the same time it can help our clients to transition to a less centralised way of purchasing insurance,” Mr Morton explained. “We also know that some of our clients will be rethinking their programme structures (revisiting the pros and cons of FoS versus local underlyers), and we are ready to have that conversation with them and the brokers,” added Mr Morton. A spokesperson for Allianz Global Corporate & Specialty (AGCS) said that if no EU passported business is permissible for UK entities, then an operational change will be needed. “This would be needed for EU passported business currently from the UK and coming into the UK from the EU,” the AGCS spokesperson said. “As UK entities could no longer issue any insurance policies to EEA-based clients, the operational hub for such EU-wide policy issuance would need to be moved to another EEA location.” AIG’s Stephen Morton said that although the parent domicile of the multinational entity is the principal “dictator” of where the global programme is coordinated, there are ways to alter it if there is good reason to do so. “An inability to passport by the UK would not change this. If passporting rights were lost, it would mean that a programme ‘underlyer’ in the EEA would need to be chosen to extend to include the FoS territories,” he said. “Where a parent company is non-EEA, it is not unusual to have a master and a parallel FoS arrangement providing the same limits. A similar arrangement could be considered if the UK lost passporting rights.” Under Article 50 of the Lisbon Treaty, the UK has to notify the European Council of its intention to leave. After that happens, it is likely that there will be a two-year period before the UK actually exits the EU. Mr Morton said that means no immediate action has to be taken and a strong argument exists for waiting to see how negotiations between the UK and EU develop during the next year. “It is only on the first renewal/extension to a policy following an exit without suitable passporting permissions that programmes would really need to be adjusted,” he said. Speaking for Zurich Insurance Group, Frank Keidel said the Brexit vote would not have any immediate impact on its global programmes. “The process of the UK leaving the EU is likely to take years, so at the moment it’s far too soon to say how this will affect our business,” he said. “We have set up a team to follow the process closely and will provide information to customers, distributors and employees as the process evolves.” AGCS also sought to soothe clients’ nerves, saying that it will ensure that any impact is manageable and involve the least possible disruption. “London still retains a great deal of expertise in writing global programmes and while EU locations can form part of any programme, there are many other locations in the rest of the world for which the licensing issues will remain unchanged,” it added. In an advisory note to its clients, Marsh also said that Brexit could create passporting issues for insurers and brokers into the EEA. It said insurers that wish to carry on business in other EEA states could be required to obtain licences in each member state, or form a new legal entity based in one of them, depending on which option is adopted. Similarly, an EU insurer could now need an additional licence to carry on insurance business in the UK, or to form a new UK entity. “Writing business through local branches will require local authorisation and capital being deposited to support the branch in some cases,” Marsh added. “It is possible that some insurers with UK operations could establish greater presences in continental Europe in order to more easily operate under the single licence, particularly those insurers that currently make extensive use of the passporting rights,” advised the broker.

Brexit will hit global programmes but no need for panic, advise insurers and brokers

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