A “principled” Brexit – or one that respects the result of the referendum – was how Prime Minister Theresa May described how she plans to implement the UK’s departure from the European Union. In a whitepaper nearly 100 pages long, May sets out the government’s vision for the future relationship between the country and the EU, including the issue of market access which has left the insurance industry on edge.
“In the referendum on June 23, 2016 – the largest ever democratic exercise in the United Kingdom – the British people voted to leave the European Union,” May wrote in her foreword. “And that is what we will do – leaving the Single Market and the Customs Union, ending free movement and the jurisdiction of the European Court of Justice in this country, leaving the Common Agricultural Policy and the Common Fisheries Policy, and ending the days of sending vast sums of money to the EU every year.
“We will take back control of our money, laws, and borders, and begin a new exciting chapter in our nation’s history.”
Needless to say, “leaving the Single Market” strikes a chord, as this will impact the conduct of insurance businesses. But May’s proposal has made the government’s stand on this perfectly clear, with the whitepaper stating in a section on financial services: “The UK can no longer operate under the EU’s ‘passporting’ regime, as this is intrinsic to the Single Market of which it will no longer be a member.”
This is consistent with a previous statement made by EU chief negotiator Michel Barnier. Back in November he said the UK will lose the benefits of the Single Market.
“We are disappointed”
Following the release of the whitepaper, the insurance industry was quick to react – and let’s just say the vision set out in the highly anticipated document wasn’t entirely welcome. The London & International Insurance Brokers' Association (LIIBA), for instance, did not hold back in expressing its sentiments.
“We are disappointed that the government has not reflected the strong feedback from our industry that both EU clients and UK business would be best served by a mutual market access regime,” commented LIIBA chief executive Christopher Croft. “We will work with our members to understand the full implications of what is being proposed.
“As always, central to that effort will be a focus on how we ensure that the client is the one to suffer least from the disruption Brexit will cause.”
The London Market Group (LMG), although similarly displeased, offered ‘understanding’.
“While we are disappointed that our request for a bespoke arrangement delivering mutual market access is not part of the government’s vision, we understand the difficulty of achieving this in the time remaining for an agreement,” said LMG’s government affairs workstream chair Malcolm Newman, who is also managing director of SCOR’s EMEA (Europe, the Middle East, and Africa) Hub.
“The desire to obtain the best possible outcome for both the UK and EU27 inevitably leads to a need to compromise,” he explained. “While we are concerned that the government’s proposal for an economic and regulatory arrangement may not fully meet the needs of the London Market, we are hopeful that the detail behind a new agreement will consider the customers and businesses in the EU27 who rely on the London Market to insure their most complex risks.
“Without that, such an agreement threatens to cause significant disruption to a wide range of EU sectors – including airlines, bank lending, and vital public services – and will put up barriers to accessing London’s breadth of expertise and specialist capacity, some of which cannot currently be offered by any other insurance centre.”
So what happens now?
Newman said “a crucial next step” is progress on the contract continuity issue. He stressed that clients in the EU27 should not find themselves amid contractual uncertainty and protection gaps, in the same way that their insurers should not be in a situation wherein they would have to break the law in order to make good on contractual obligations.
“The issue of contract continuity must be resolved,” concurred Croft. “There is some doubt as to whether UK insurers will remain licenced to pay claims in a few EU countries without an agreement in place.
“We therefore support the call by the FCA (Financial Conduct Authority) chief executive Andrew Bailey for this to be resolved at official level. The sooner the better. Transition arrangements will only postpone the issue.”
The Association of British Insurers (ABI), for its part, believes “the insurance industry is too important to be a rule taker.”
Commenting on the Brexit proposal, ABI director general Huw Evans said: “Having to comply with financial regulations we have no say over [what] would be the worst possible scenario for our world-leading insurance sector, so we will look to the government to negotiate a better outcome than this.”
Catherine McGuinness, policy chairman of the City of London Corporation, called the whitepaper “a real blow” for the UK’s financial industry.
“With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax, and support growth across the wider economy,” she noted. “It’s that simple.”