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Are MGAs prepared for a no-deal Brexit?

Are MGAs prepared for a no-deal Brexit? | Insurance Business UK

Are MGAs prepared for a no-deal Brexit?

At a recent MGAA conference on Brexit's impact on MGAs, Jonathan Askin, national head of commercial law at BLM, provided a timely update on the likely impact of Brexit on MGAs and outlined what these businesses can do to prepare.

At Swiss Re’s Global Economic and Insurance Market Outlook 2020/2021, Brexit was somewhat dismissed as a global risk, due to how drawn out this process has been, and the consensus was that many insurance companies have already taken the necessary action to ensure that they are well-positioned, even in the event of a hard Brexit.

However, for many smaller insurers, MGAs and brokers the complexity of the current Brexit position has led to enormous uncertainty regarding the next step for their business strategy. And the Brexit scenario envisaged by each of the major parties, as outlined by Askin, affords little clarity regarding the full impact of Brexit and makes it seem that the upcoming general election is unlikely to offer any immediate clarity for businesses.

Large insurance clients can afford to move to an EU country, said Askin, to take on staff, to rent premises and to handle the regulatory side of this transition with capital behind them. And even if a hard Brexit doesn’t happen, he said, these costs are built into their business plan and these premises and workforce can still be utilised going forward.

“If you don’t have pockets that deep,” Askin said, “it’s hard to advise on what’s the best- and worst-case scenario.”

Askin detailed how hard it is for businesses without the luxury of extensive available capital to make informed decisions. Many businesses, he said, might know what the answer is that will completely remove any risk to their model, but the question remains - can they afford to do it?

This, Askin said, is especially true for brokers, who have been seeking advice on how Brexit may impact them for some time.

“Those brokers with the deepest pockets are those that can start to put contingency planning in place,” he said, “and go one step further in taking action to cover all eventualities; unfortunately it is the brokers who can’t afford to…take action to cover all eventualities who may find themselves impacted the most should a hard Brexit occur.”

“[Brexit] is the unknown,” summarised CEO of Pro MGA Solutions Limited, Danny Maleary, speaking with Insurance Business. “There’s a greyness around what’s needed and what’s not needed.”

The issue also arises with businesses that are simply unaware of the Brexit risk or that are refusing to interact with this problem. It is quite frightening, said Askin, to see the smaller businesses that haven’t necessarily taken advice yet on what they need to be doing. This is led, said Askin, by a desire to wait and find out what happens without acknowledgment of how this delay might impact them.

Maleary outlined how there is a blend of reactions by businesses to the Brexit risk. Some, he said have thought about it extensively and have planned out a range of solutions. Others, he outlined, fall into the category highlighted by Askin, and have plans that they intend to implement once they understand the route the UK is going to take. And finally, there are those who simply have not given this risk much consideration, Malearly said.

Askin detailed the key areas that should be considered by MGAs when it comes to preparing for Brexit and particularly for the potential of a hard Brexit and highlighted what businesses should be doing to mitigate these risks.

Market access and passporting is a key area of risk, according to Askin, and MGAs must carefully consider the regulatory permissions they are required to have implemented following Brexit. MGAs must check with insurers and other broking partners whether their distribution channels are still relevant in a post-Brexit environment, said Askin.

Data is another consideration that must be addressed, and Askin outlined how businesses must consider how personal sensitive data is transferred between data controllers and data processors based in the UK and in the EEA.

Data protection in contracts and privacy policies are generally straightforward at the moment throughout the EU, said Askin. However, he warned that, in the event of a hard Brexit, the UK would become a ‘third country’ which would technically not be considered adequate to share data with the rest of Europe.

An adequacy decision should not take long, said Askin, but there would be a period where any European entity doing business with a UK entity and passing data without the right clauses and security measures would be in breach of GDPR.

The impact of Brexit on employees and professional qualifications must also be addressed by businesses, said Askin.

“If you’ve got a qualification that is recognised by the EU then it will be recognised up to the point of the withdrawal agreement or the end of the transition period,” he said. “But if it’s a hard Brexit, insurance and legal qualifications will stop being recognised in the EU, if they’ve been recognised by a UK industry body.”

Whilst it is not feasible for every UK business to take the route of creating an EU subsidiary, particularly considering the uncertainty surrounding Brexit and whether such a subsidiary would ever become necessary, Askin believes that all businesses should be paying close attention to the risk areas that will affect them in the event of a no-deal Brexit.

However, he also said that keeping open channels of communication also means being aware of the unique opportunities which may be afforded by such an outcome including the potential for non-European based trade avenues, whether for services or goods.

“There are potentially better [trade] agreements that could be on the table from places like the US, where you could start to do much more business,” he said.

The key to navigating the risk, uncertainty and indeed the opportunities afforded by Brexit, according to Askin, is communication.