The insurance market provides their Brexit negotiations wish-list in a report by the London Market Group (LMG) titled, ‘A Brexit Roadmap for the UK Specialty Commercial Insurance Sector’. The report comes just days before the official Article 50 trigger date was announced.
UK-based insurers can currently conduct cross-border business on a prudential basis without incurring additional costs or further authorisation from their host state—as can our European neighbours. With the Union’s exclusive passporting system, businesses in the financial services sector operate on the union-wide assumption that each state meets the standard requirements to do business as necessitated by EU law.
The insurance market is a large contributor to the UK economy and the European Union is one of our major trading partners. According to LMG, a market-wide body representing the insurance and reinsurance market in London, approximately £8billion of premium is brought to the London insurance market by brokers on behalf of EU customers annually. The LMG highlights the importance of EU members to the UK insurance market, by stating that ‘£6billion of international business is written in London by firms with a parent company or principle base located elsewhere in the EU.’
The report urges the government to deliver on these three main objectives in their Brexit negotiations wish-list to protect the current insurance market sector throughout the Brexit process.
The government should agree with Union leaders on a mutually beneficial trade deal that is comparable to current prudential regulatory regimes, says the first objective in LMG’s Brexit negotiations wish-list. The government should initiate negotiations on Solvency II equivalency as early on in the negotiations as possible. Early agreements should be made so that the formalities needed to implement the new agreement would be in place by the time the UK has formally left the Union.
LMG says that equivalence to Solvency II, a Directive in European Union, would promote a number of strengths within the insurance market. These include a strong balance sheet and an internationally well-regarded and transparent system of regulation.
Equivalence under Solvency II does not give the UK access rights to the Single Market and ‘is not an alternative to the access arrangements the industry currently enjoys,’ says the report. But while this is true, equivalence to Solvency II would be the least disruptive option for businesses across the UK and the EU. Two of the UK’s major competitors in the insurance market include Bermuda and Switzerland, both of whom have equivalence to Solvency II; evidence in the success of this method.
Unimpeded access to the EU market
Brexit brings with it the threat of Britain losing its exclusive passporting rights—a system that enables financial services to trade freely within any European state. To avoid disruption as much as possible, the UK government, along with EU leaders, should work to give rights to UK-based insurance professionals that allow them to accept business introduced by brokers in the EU. As part of their Brexit negotiations wish-list, LMG also believes that this should be a reciprocal agreement and EU-based insurance professionals should be granted the same rights.
Early agreement of an implementation period with market access rights
The LMG’s third objective in their Brexit negotiations wish-list urges the government to agree at the start of the negotiations an implementation ‘period’ with market access rights. This would allow for companies to prepare for the new agreements in the interim and avoid a ‘cliff-edge’ Brexit, removing the threat of EU trade barriers. Negotiating an implementation period would be imperative, as the uncertainty on whether insurance policies will be enforceable is already affecting the decisions of the London insurance market’s clients.
An implementation period with market access rights would give both UK-based and EU-based professionals the certainty they need to keep their business in London. It could also eliminate the need for businesses based in the UK to pre-emptively reorganise before understanding the nature of the new UK-EU relationship post-Brexit. The prime minister has promised businesses that the government will ensure certainty throughout the whole process.
According to LMG, the insurance market accounts for 21 percent of the City’s GDP and supports the broader global economy by contributing more than £140billion claims over the last five years. These claims have included $1.2billion to the New Zealand earthquake in 2011 and $1.95billion to the Japanese earthquake and tsunami in the same year. The insurance market provides their Brexit negotiations wish-list as structure for the government in which to approach its negotiations to ensure its growth and continued success.
The London Market Group is a market-wide body representing the insurance and reinsurance market in London. The group’s overall aim is to build on the position and reputation of London as the global centre of insurance excellence.
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