The International Underwriting Association (IUA) has published a second policy clause to help London market insurers deliver clients contract continuity for policies written on a subscription basis if a no-deal Brexit hits.
The IUA, which represents non-Lloyd’s international and wholesale insurance and reinsurance companies in London, said the new clause builds on its original Brexit continuity clause published last month.
The first wording is designed to allow a risk to be placed with both a UK-domiciled insurer and a ‘contingent’ EU-based insurer. In the event of any Brexit difficulties, the contingent insurer can step in and fulfil any policy obligations the original carrier is no longer able to cover.
This can now be adapted through the new clause released today to accommodate risks placed with multiple insurers.
Neither clause is compulsory. Insureds and carriers can adopt and adapt its provisions as they see fit, said the IUA.
Chris Jones, director of legal and market services at the IUA, said: “In the event of a no-deal Brexit, companies will fall back on their own individual contingency plans for a continuation of their services to clients. These plans are well advanced and IUA members are working hard to ensure market disruption is kept to a minimum.”
But he said contract continuity is a “key concern” and it is “vital that companies are able to fulfil commitments to clients whatever the outcome of Brexit negotiations”. “Our policy clauses are designed to address this issue and support firms as they prepare for the UK’s future outside the EU,” said Mr Jones.
Both the original IUA Brexit clause (reference IUA 09-077) and the new clause (reference IUA 09-078) are freely available from the association’s clauses website (www.iuaclauses.co.uk), along with accompanying commentaries.
In the event of a no-deal Brexit, insurers may not be able to pay claims or service certain contracts taken out before Brexit. UK insureds could be left unprotected by cover purchased from insurers based in the EU. Perhaps an even bigger problem given the importance of the London market for EU insureds, European buyers could find they are unable to receive payment from UK-only carriers.
With many London-based insurers preparing to write business from new EU subsidiaries next year, in the longer term the risk of contract continuity is less of a concern. But in the short term, it is potentially a big problem.
London market representatives told CRE this week that Brexit clauses, which tend to involve the creation of contingent liability for an EU entity, are one potential solution to contract continuity but will likely only offer part of the solution.
“We are working with our members to try and agree a standard clause – based on the useful proposal from IUA – but again it may not be a panacea,” said London Insurance and International Brokers Association’s (LIIBA) chief executive Christopher Croft. LIIBA represents the interests of Lloyd’s insurance and reinsurance brokers operating in the London and international markets.
Mr Croft added that the London market is doing “all it can” to address the issue of contract continuity and find a workable solution. “But there remain so many uncertainties that it is hard to say whether this will prove adequate,” he added.
The British Insurance Brokers’ Association (BIBA), which represents general insurance intermediaries across the country, told Commercial Risk Europe that market solutions are being put forward, but explained there is no silver bullet.
For example, some multinational insurers are using the first IUA’s Brexit clause that may prove to be an effective solution in many cases, Mr White told CRE. However, individual contracts of insurance will vary and insurance providers will have differing circumstances, approaches and solutions, he continued.
“Each scenario will need to be considered on its own merits and any insurance buyer can seek advice from their insurance broker about their specific insurance arrangements,” said BIBA’s CEO.
“What is clear is that there are many uncertainties around Brexit and many different models raise many different risks. Circumstances and degrees of concern will vary from insurance buyer to insurance buyer and from insurer to insurer, so there is not one single solution to mitigate these risks,” he explained.