Risk associations welcome Brexit clarity from UK election but stress uncertainty remains

Ferma and Airmic say the UK election result has reduced the level of uncertainty around Brexit for business, but add that companies and their risk managers will still likely have to operate in a prolonged period during which the final outcome remains unclear. The UK risk management association therefore said Brexit uncertainty is the “new normal” and advises companies to seek ways to navigate the environment positively, rather than wait for complete clarity. The decisive UK election victory for Boris Johnson’s pro-Brexit Conservative party means that its previously agreed EU withdrawal agreement is now almost certain to pass through Parliament. On winning the election, Mr Johnson immediately set January 31 as the new date to “get Brexit done”. The withdrawal agreement would secure a transition period of at least 11 months, during which a future trading agreement is discussed. This could be extended further but Mr Johnson now plans to revise the Brexit withdrawal bill to rule out any extension of the transition period beyond the end of 2020. Things are therefore looking clearer for risk managers in the EU and the UK. Both Ferma and Airmic feel this clarity is generally good news for their members. Ferma’s CEO Typhaine Beaupérin told CRE that Boris Johnson’s election victory is an “important political step which should unlock the situation in the UK”. Anything that clarifies the situation around Brexit and remove uncertainty “is to be welcomed”, she added. Airmic CEO John Ludlow said the election result has gone “some way to reducing the level of uncertainty surrounding Britain’s departure from the EU”. “First, businesses can now make the reasonable assumption that Brexit will happen, and second, for the first time in years, the UK has a government with a solid majority and should be in a position to govern more decisively as a result,” he added. But both Ferma and Airmic pointed out that companies still need to prepare for a range of Brexit scenarios and continue to face uncertainty as discussions turn to any future trade agreement. “We will now see if the newly elected British parliament accepts the withdrawal agreement, knowing that this is not the end of the story. There is then another round of negotiation to organise the future relationship between the EU and the UK. And this is even more important as it will cover every sector of the economy. It will take some time while the new rules of the game are clarified,” said Ms Beaupérin. Mr Ludlow said the range of Brexit scenarios currently includes the possibility of an extension to the transition period, even though the UK government hopes to legislate and rule this out. “So Brexit-related uncertainty remains high, albeit significantly reduced,” he said. But however smoothly the exit process goes from here, it will potentially be years before we know precisely what post-Brexit Britain will look like, he added. Mr Ludlow said large UK businesses represented by Airmic members are well prepared for Brexit and have plans in place for the whole range of scenarios, including no deal with the EU known as a ‘hard Brexit’. He also said Brexit uncertainty is now a “new normal” and added that businesses should “find a way to navigate it positively, rather than waiting for complete clarity to move forward”. Mr Ludlow went on to say that as the UK now likely enters into a transition period with EU, the country’s risk professionals should also be watching negotiations with other regions around the world. “Attention has focused on the potential trade deal with the EU, but our future relationship with the rest of the world – the US and Asia in particular – will be just as important. If negotiations with the EU move at the pace envisaged by the new government, global trade deals will soon start to come into focus,” said Airmic’s CEO. Jennette Newman, partner at Clyde & Co and vice-president of UK FOIL, said the UK election result has handed the insurance industry “more certainty than we’ve known for three years”, but added that the threat of a no-deal Brexit at the end of next year still looms. Meanwhile, in predictions for 2020, Clyde & CO has warned that Brexit, in any form, will create insurance policyholder “distress”. “While in the long term it seems likely that a legal framework will be put in place allowing insurers to continue conducting cross-border business in some form after Brexit, in the meantime both providers and policyholders will face distress due to insecurity,” said Yannis Samothrakis, a partner in the law firm’s corporate insurance group based in Paris. He pointed out that in theory, under national and EU law, Brexit should make no difference to the payment of claims or benefits under existing insurance contracts. But he warned that the apparent rejection of the location-of-risk principle by the French insurance supervisor ACPR, which goes against the European Insurance and Occupational Pensions Authority’s official position , is “just a flavour of the kind of confusion we can expect as we move into 2020”. “By questioning the ability of insurers to pay claims under existing contracts, the ACPR is undermining customers' and insurers’ expectation that regardless of whether the UK stays in the EU or leaves the bloc, claims can be paid as they become due,” said Mr Samothrakis. He said that post-Brexit, France will be the largest insurance market in the EU and other countries may look to the country for a regulatory lead. “The risk is that if there is no convergence of supervisory practice at European level, we are likely to see more erratic behaviour on the part of local regulators, which will result in a high level of distress for insureds,” said Mr Samothrakis. He concluded that the big problem is that insurance industry owns this problem, but not the solution, which lies with politicians and regulators. In related news, research published just before the UK election by Mactavish found that only 25% of UK businesses facing Brexit-related risks have informed their insurers, putting claims at high risk of being rejected. The firm added that individual directors could be exposed to litigation if they fail to inform insurers of such risks because of traditional limitations in D&O insurance.

Risk associations welcome Brexit clarity from UK election but stress uncertainty remains

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