Attempts to allow UK-based insurers that wish to continue to payout claims on existing policies no matter where the policyholder happens to be located, have hit a roadblock with some EU member states refusing to change current rules, therefore leaving many expat policyholders in limbo.
There have been attempts by Germany and Italy to introduce a mechanism to make sure if an insurance business becomes unauthorised as a result of Brexit, then the policy held by a UK expat living in those countries can still be paid. But the failure of other EU member states to reciprocate this measure means that many live insurance policies may not be able to be legally paid out in the result of a no deal Brexit, according to the latest update from the UK's financial regulator.
In a speech Andrew Bailey, chief executive of the Financial Conduct Authority, delivered at Bloomberg, (16 September 2019), entitled 'Preparing for Brexit in Financial Services: The State of Play', he expressed his concerns over a "lack of legal certainty" in some jurisdictions will create "adverse outcomes" for consumers.
"At the FCA, we continue to plan for all potential outcomes, and that of course includes the possibility of no deal exit," said Bailey. "I say that deliberately, not because I take a view on the substance of the matter, but because in terms of contingency planning it would be foolish not to do so."
On prioritising consumer protection in financial services relating to all consumers wherever they are located, Bailey for action to allow UK insurers to be able to pay claims on existing policies "wherever the policyholder happens to be located".
"I have never met an insurer who disagrees with this statement, and I doubt that policyholders would either. For our part, we are clear that our consumer protection objective applies equally in respect of consumers wherever they are resident," he said.
"The majority of UK firms have confirmed that they plan to maintain existing products and services to their customers resident in the EU. Firms positions have generally been informed by the relevant transitional regimes offered by member states as well as their understanding of the legal and regulatory position, and a good dose of common sense.
But, there remains a risk that lack of legal certainty in some jurisdictions will create adverse outcomes for consumers."
Keith Richards, CEO of the UK's Personal Finance Society, said the FCA's comments show some European countries could cause problems for UK-based insurers who want to continue to pay claims on existing policies.
He said: "Some countries, such as Germany and Italy, have introduced a mechanism to make sure if an insurance business becomes unauthorised as a result of Brexit insurers can still pay claims on existing policies wherever the policyholder happens to be located.
"However, as the FCA has highlighted today, some member states may choose to insist that insurers become established in their member state in order for them to carry on paying contracts.
"In a hostile no-deal scenario some of the proposed mechanisms could be changed over time. To be clear, this is only likely to affect a very small number of consumers: even in January this year, the EU identified that issues would only exist for ‘a handful of non-life insurance undertakings in the UK'.
"However, there is no way all clients can be guaranteed of a permanent seamless transition of the payment of claims in a no-deal scenario."
This article was first published on International Investment, a sister publication to InvestmentEurope.