Earlier this week, when speaking at City Week 2020 – The 10th International Financial Services Forum, the departing interim chief executive of the Financial Conduct Authority, Christopher Woolard, warned that City firms must intensify their preparations for Brexit and brace themselves for all possible trade talk outcomes.
The uncertainty stemming from the COVID-19 pandemic has meant that Brexit considerations have not been front of mind for many organisations, but the recent headlines surrounding the Brexit Internal Markets Bill passing its first hurdle in the House of Commons have revealed the truth of the title of an upcoming Airmic seminar: “The Brexit clock is ticking”.
The talk, being held tomorrow at 9:45am, features a range of industry leaders who will be examining what the final months of negotiations will mean for the insurance market.
Among these is Roy White (pictured), chairman, UK & Ireland, Marsh JLT Specialty, who spoke with Insurance Business in the run-up to Airmic Fest to highlight that, as talks continue, there will somewhat inevitably be further moments of tension which will make insurance consumers nervous as to what Brexit will mean for them. The best-case scenario is that the process will be smooth and a deal will be struck, he said, but he believes preparations for a difficult exit must be put in place.
“Intermediaries and the insurers are doing all that they possibly can to make the transition from the historical arrangements to the new ones as smooth as possible,” he said. “It’s all about making it as seamless and as painless for our clients and the insureds as it can be. That has involved quite a lot of work on the part of brokers such as us, and insurance companies in structuring their organisations and putting the appropriate governance in place to minimise that impact.
“And I think that I speak for insurers as well as brokers in saying that we’re trying to make this as smooth as possible. We don’t want any intrusiveness on what is already a challenging time for clients… The insurance industry has a responsibility to not be a problem in what is already a complicated situation.”
As a broker, Marsh’s key focus has been on maintaining access for its clients to the insurance solutions that exist in the UK insurance market, White said, and in making this transition a seamless experience. Clients need to have continued access to the expertise of colleagues, whether that is insurers or brokers, who can give them industry insights, products and technical knowledge. It may seem an old-fashioned subject, but relationships are as important as ever, and Marsh is often dealing with very long-term relationships when it comes to its European clients and European offices.
“I think we have to prepare for there to be no agreement that gives any form of support to the insurance solutions,” he said. “I think we are preparing for a no deal. We are structuring our offerings and our approach on the basis that we will lose passporting rights at the end of the year and that there will not be a fix that will replicate that in any trade agreement, if a trade agreement is put in place. And I think that caution has been proved justified by the current dramas.”
“[These] has been a reminder of how fractious the negotiations could be in the final days and weeks. And it’s a reminder that there may not be a trade deal, which we’ve been factoring in for a good period of time. We not only didn’t necessarily expect a trade deal, we were also fully factoring that any trade deal would not preserve the passporting rights by which intermediaries have historically serviced European clients.”
As a business which gives its clients advice regarding risk management, it was only appropriate that Marsh also managed its own risks appropriately, White noted, and that it demonstrated resilience during these difficult times. Forward planning cannot be underestimated in terms of importance. Whether it’s as dramatic as Brexit, or as challenging as the COVID crisis, the necessity is to model for every scenario and to make sure there is ample time for thoughts, challenges and reflection.
There have been numerous warnings of the need to prepare for Brexit, he said, with so many cliff edge moments when it looked like the UK might have left the union abruptly. And the transition period gave everybody more time to prepare, which Marsh has used to examine the legislative and regulatory environment, and thus realise the amount of planning and preparation needed.
Read more: Marsh on a year of change and opportunity
“We will be governed by the insurance distribution directive as we are now after the end of the year,” White said. “And while that does lay down some good guidance and guidelines, it also needs to be interpreted. And we have to be careful to interpret that in a way that’s conservative, cautious and ensures that we continue to be able to trade in a regulated fashion. We understood that this was a complex subject that needs a lot of preparation, as we’ve thrown a lot of resources and thought at this for a number of years now.”
Among the core solutions being implemented by the organisation is the activation of its own restructuring through the creation of branches of European entities, starting from the first of October 2019. In Marsh, there are two branches – a UK branch of its Belgian business and a UK branch of its Irish business. While there was no active need for these branches to be triggered until the end of the year when the UK leaves the EU, White said, this was another form of early preparation.
“We felt that we needed it to be healthy, to have a period in which we could operate as if we were outside of the EU, testing the operational resilience of our new models, spotting any glitches etc,” he said. “So, the first of October is the trigger date for our branches. Our reinsurance intermediary arm Guy Carpenter is a third branch so there has been a lot of preparation for this.”
All of the immense work that the business has been doing to prepare for Brexit has been with the transition experience of its customers in mind, he said, and ideally the only real changes they will see may be in the branding of the paperwork they receive. Speaking with clients consistently through this time and bringing them along on the journey, in terms of what to expect, has been essential. They are facing a lot of distractions and crises of their own right now, and are looking to insurers and brokers not to make this an added burden.
“[Tomorrow’s] Airmic session will be interesting for us as well,” he said, “because it will give us some sense as to the wider insurance community’s preparedness. Now, our sense is that we are in good shape as an insurance community. But the nature of the questions from the Airmic members, will give us a sense as to whether they feel as comfortable as they need to feel about the level of preparation for what’s coming in just a few months.”