The European Parliament’s Brexit coordinator Guy Verhofstadt has said insurance buyers holding policies when the UK exits the EU need not fear contract continuity problems.
In a letter to the UK House of Commons’ Exiting the EU Select Committee on the impact of Brexit on existing contracts, Mr Verhofstadt played down the threat of contract continuity and therefore the ability of insureds to receive claims.
“When it comes to ensuring the continuity of contracts concluded before Brexit – such as insurance and over-the-counter (OTC) derivatives contracts – the assessment made by the EU so far indicates that issues are likely to be linked to a far more limited set of contracts than initially feared by some,” wrote the Belgian MEP, in a letter dated 18 September and recently made public.
“As regards cross-border insurance contracts, the vast majority are one-year or short-term contracts like travel insurance. For these contracts there are no cliff-edge risks. For the rather limited number of cross-border EU-UK insurance contracts that would still be in place after the UK’s withdrawal, they would remain valid and the performance of existing obligations under the contract could generally continue to take place,” he continued.
“This would mean there is as a rule no issue of contract continuity,” Mr Verhofstadt stressed.
This is good news for risk and insurance managers across Europe, but there are no details on why Mr Verhofstadt and the EU feel that contract continuity will not be an issue. It certainly has not stopped a raft of insurance companies setting up new subsidiaries to ensure they can access customers across Europe post Brexit, with many due to begin writing policies from early 2019.
But they and their customers will be buoyed by the fact the Mr Verhofstadt seems confident, clearly backed by political will from the EU, that contract continuity will not be a problem for policies in place when Brexit happens, currently due for 29 March 2019.
However, Mr Verhofstadt made clear that insurance companies must make plans to ensure they can continue to serve customers in the longer term.
“Although I fully understand that market participants would prefer ‘business as usual’, it should come as no surprise to market participants and UK supervisors that the UK’s withdrawal has consequences, also in the financial services area. For this reason, the EU has over recent months consistently encouraged all stakeholders to prepare for the UK’s withdrawal from the Europe Union,” he said.
Adding: “As stated by the European Insurance and Occupational Pensions Authority (EIOPA), firms should assess the impact of the withdrawal on their operations and contract portfolios and, also in cooperation with the relevant national supervisors, identify and then mitigate these risks. The customers should be clearly informed about the possible impact on their insurance contracts and on the relevant measures taken by insurance firms.”
Mr Verhofstadt noted that the transition period ending 2020, currently in the draft Withdrawal Agreement, would help alleviate this burden on insurance companies. During this period, the economic status quo – including passporting rights – will be maintained, stressed the MEP. But he pointed out that there is no legal certainty about the transition period as long as the Withdrawal Agreement is not concluded and ratified.