The London insurance market has published a Brexit clause for insurance contracts, to ensure certainty for policyholders and eliminate problems caused by transitional arrangements. The International Underwriting Association (IUA) said the Brexit Contract Continuation Clause will clarify how claims will be paid when the UK leaves the EU, regardless of whether a transition deal extends passporting rights.
Under the clause, risks can be placed with a UK insurer and a contingent insurer in the EU that will meet obligations if the original carrier cannot cover claims because of Brexit. Insurers in both the UK and Europe may not legally be able to pay claims on contracts in force after Brexit, which is due to take place in March 2019. Transitional arrangements have yet to confirm whether passporting rights will be extended.
The IUA said the clause has been drafted to take into account new corporate structures set up by many UK insurers, including extra subsidiaries or headquarters in mainland Europe.
Chris Jones, director of market and legal services at the IUA, said: “The Brexit process continues to be quite uncertain in the nature of its final outcome and the future trading relationship between the UK and remaining EU states.”
Adding: “A number of other market clauses have already attempted to address the issue of contract continuity, but it has proved difficult drafting a solution that covers all political eventualities. Another problem has been catering for the many different corporate structures, both currently present in the London market and planned by firms as part of their Brexit contingency responses.”
He said that a key concern of the IUA’s new clause, therefore, is to ensure that legal principles underpinning the contingent insurer approach are “sound”, and that the terminology and intent of the wording is as clear as possible.
The IUA said the voluntary clause is intended for insurance contracts but could be extended to reinsurance. The clause will only be activated when the UK leaves the EU, including any transition agreement.
Brexit, alongside market modernisation and underwriting system upgrades, was named as one of the top three priorities for 2018 in a survey by the Lloyd’s Market Association. Its survey of Lloyd’s market chief operating officers found the majority (57%) of managing agencies favoured using the new Lloyd’s Brussels subsidiary for continued access to European markets after Brexit. Some 43% said they would create their own EU subsidiary to continue EU business.