Brexit deal – what does it mean for insurers and insurance intermediaries?

The post below was first published on our Insurance blog

Yesterday's announcements on the terms agreed for the UK's withdrawal from the EU say relatively little about the future framework for cross-border trade in goods or services.  More detail is expected on this next week.

The final deal remains subject to approval by the European Council, the EU Parliament and, crucially, the UK Parliament.  Nonetheless, yesterday's agreement must have increased the chances of a transitional (or implementation) period for the UK’s withdrawal from the EU.  During that period, both (re)insurers and (re)insurance intermediaries would continue to benefit from the passporting rights that they currently hold, but ultimately stand to lose.

In the longer term, and assuming that the final deal is approved by all parties, the Outline Political Declaration on the Future Relationship between the EU and the UK establishes the following three key principles:

• Commitments to preserving financial stability, market integrity, investor protection and fair competition, while respecting the regulatory and decision-making autonomy of the EU and the UK (the "Parties"), and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties' ability to adopt or maintain any measure where necessary for prudential reasons.
• Commencement of equivalence assessments by both Parties as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020.
• Close and structured cooperation on regulatory and supervisory matters, grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability, recognising this is in the Parties’ mutual interest.

It must be very likely that the promised equivalence assessments would result in a positive determination in respect of both the UK and EU regimes, given the UK regulators' apparent reluctance to heed calls for relaxation of the UK's financial system.  However, as discussed in our blog post last week, securing “equivalence” for the UK regulatory regime will not mean that UK insurers and intermediaries can continue to carry on cross-border business post-Brexit (or post-implementation period) as if they held passporting rights.  This is because, whilst a finding of equivalence would have some value for certain UK (re)insurers, those benefits fall considerably short of offsetting the loss of the passport.

In the case of intermediaries, “equivalence” has no meaning whatsoever under the Insurance Distribution Directive. We do not see how a finding of equivalence materially assists those wishing to distribute insurance cross-border.

So far as we can tell, the terms of the deal also do nothing to resolve issues relating to contract continuity.  This is perhaps not surprising.  Nonetheless, and as discussed in previous blog posts, it remains a concern for UK (re)insurers whether, once they lose passporting rights, they will be able to meet their obligations to EEA policyholders.