Cross-border insurance companies could be forced into making a conscious decision to break the law, in order to protect clients policies post Brexit, unless issues relating to existing contracts are not prioritised as part of the UK’s Brexit discussions, according to the Association of British Insurers (ABI).
With the ongoing talks between the UK and the European Union hitting the buffers on numerous issues, including, as reported, freedom of movement of UK expats living in the Eurozone and expats from European countries living in the UK, there are concerns over resources within the UK financial sector to cope with the bureaucratic demands of Brexit.
The Bank of England, the Financial Conduct Authority and the Prudential Regulation Authority (PRA) have all expressed concerns about their ability to to cope with Brexit and other important matters within the industry.
Huw Evans, pictured below left, director general of the ABI, has backed the PRA’s stance on the matter but outlined the insurance and pensions sector concerns over a post Brexit environment where policies could be at risk unless a new system is implemented.
He said: “As the deadline for Brexit looms, many insurers’ biggest fear is that they will be left with a stark choice between breaking their promise to customers or risk breaking the law if the issue of how to fulfil existing contracts cross-border is not resolved.
Evans was commenting following the publication of a letter from the chief executive of the PRA, Sam Woods, pictured below left, has sent to Chair of the Treasury Committee Nicky Morgan, a Conservative MP.
“This is an urgent issue and we are pleased it is high on Sam Woods’ agenda,” added Evans. “Agreeing terms to allow insurers to service contracts after March 2019 needs to be part of the exit negotiations between the UK and EU. We will continue to work closely with the Government, our membership and the PRA in an effort to ensure a solution is in place in time.”
Millions of contracts ‘at risk’
The ABI said that the problem revolves around millions of insurance and pension contracts written pre-Brexit that will still be in force post-Brexit and impacts a wide range of people and businesses. These include:
- Companies in the UK paying pensions to people living in the EU, including expats.
- Anyone resident in the UK receiving a pension from the EU.
- Business insurance contracts, such as liability insurance sold from the UK to a company in the EU
- Business insurance contracts sold from the EU into the UK.
The risk has emerged because as a result of leaving the EU Single Market, some insurers will lose their automatic licence to insure in the customer’s jurisdiction. They therefore may not be legally able to pay what they owe without a replacement agreement, the ABI warned.
Woods also said the Bank’ of England’s regulatory arm, the PRA, faced “a material risk to its objectives” – which include promoting financial stability – as it deals with the UK’s exit from the EU.
Woods warned of a “material extra burden” on the PRA if it had to regulate more financial firms as they made plans to cope with Brexit. “It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it,” said Woods.
Woods said the PRA was in the process of investigating the impact of the plans of the 401 City firms that he wrote to earlier this year, to ensure each one was ready for Brexit and also to establish whether there were “broader financial stability risks, which could arise from the collective execution of the contingency plans”.
In his letter Woods did not provide any details of the individual plans the Bank had demanded by 14 July or any clues as to how many companies have revealed plans to leave the City after Brexit.
Some firms have begun to reveal how they intend to cope with the UK’s exit from the EU with RBS set to expand operations in Amsterdam and Barclays and Bank of America announcing separate plans to move staff to Dublin. elsewhere HSBC has revealed that it will move 1,000+ jobs from the UK with Paris mooted as a new base and Morgan Stanley has said that it will move some staff to Frankfurt.