Brexit Could Grind Insurance Business to a Halt in Europe - Telcoverager
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Brexit Could Grind Insurance Business to a Halt in Europe

Brexit Could Grind Insurance Business to a Halt in Europe

Reading Time: 4 minutes

All eyes are on the UK as Brexit inches closer. On the 29th of March, an enormous decision will be finalised with far reaching ramifications for businesses everywhere – making Brexit a prime concern of insurance professionals with EU business interests this month. Naturally, those in the insurance industry and their distribution partners are nervous about how Brexit will hit them in particular, and want answers. So, let’s take a look at the facts and provide a realistic insight on how the insurance world may look after a hard Brexit.

 

 

Post Brexit Hit 1: No New Business Allowed in the EU With a UK License

 

A significant number of insurance carriers have been writing their affinity insurance programs out of UK branches, using a UK insurance license for their business in the European Union. Should there be a hard Brexit, it would mean that as of the 29th of March carriers are no longer allowed to use this licence for any business in the EU. If they wish to continue to do business with countries in the EU, there’s no other solution than to set up a branch somewhere in the EU that holds an EU licence. If insurance carriers don’t already hold an EU licence, they must apply for one. As well as the obvious financial and time cost such a move entails, the whole procedure includes a lot of paperwork, such as signing revised contracts with distribution partners and creating new documents for end customers (the General Insurance Conditions papers and the IPID for starters). Not an appealing prospect! Unsurprisingly, there has been a recent flood of insurance license applications – which has also led to considerable approval waiting times.

 

 

Post Brexit Hit 2: Risk That Existing Insured Customers Can No Longer Be Served

 

The impact of a hard Brexit isn’t ‘just’ limited to new business. It will be the source of much larger challenges. One of the most worrisome will be the effect it may have on the existing insured customer base. Without an EU license, insurance companies are no longer permitted to serve their EU customers after March 29th, unless the local regulatory authorities grant exception rules. One such exception could be that UK insurers are allowed to use their existing EU customer base for 1-2 years. However, as of today, no such exception rules have been decided upon in most EU countries. Even if such legislation was to be put in place, it’s unlikely this will happen quickly – and the more probable outcome is that insurers without an EU licence will be required by law to terminate their existing customer base in EU countries. This would, of course, be a monumental loss for affected companies – and it is what the industry is realistically facing now.

 

The only way out of such a business doomsday scenario is to transfer the insurance program to a carrier within the EU – but this is a very lengthy, expensive and resource intensive procedure. Primarily, the transfer must win the local supervisors approval. Then comes the process of informing all existing customers about the change of the insurer; which involves the offer of an ‘extraordinary cancellation right’. Such complexity means a portfolio transfer can take between 6 to 24 months. Those insurance carriers that haven’t yet started such a transfer are now definitely in trouble as Brexit nears – as an incompletion of this process will mean a contract violation under law.

 

Navigating business post-Brexit will require strategic thinking.

 

Post Brexit Hit 3: Distribution Partner Loss

 

As with all change, preparation can make all the difference. Most of the insurance carriers who used a UK license to write their affinity insurance programs migrated their insured EU customer base last year when Brexit rumblings became a definite cause for alarm. Having judged the risk as severe, these insurers now use a EU license outside the UK and have informed their customers accordingly. They can now rest easy(ish) in a “safe harbour” without fearing the worst case scenarios of Brexit.

 

Then there are the companies that potentially misjudged the risk, and are woefully ill prepared for a hard Brexit future. Surprisingly, even big insurance players are counted amongst these – and we see some known industry names still writing business in the EU under their UK license, with apparently no EU license secured before March 29, 2019. As already mentioned, the delay will be further extended by the ever growing mountain of licence applications – it’s therefore extremely unlikely that these companies in question will receive approval in the countdown before the 29th.

 

Should the hard Brexit go through, the distribution partners of these companies will be led into dire straits along with the insurers themselves. No longer will partners be allowed to sell new policies, and their business within the EU will grind to a halt. For the insurers, this could mean several months of lost insurance premium and the possible obligation of having to cancel existing EU customer contracts depending on the local regulations. A huge blow. For the distribution partners, it also means high losses of earned insurance premiums and commissions.

 

It’s fundamental then, that these partners be prepared for Plan B(rexit). An alternative insurance company must be listed to take over if distribution partners wish to avoid the otherwise inevitable revenue crash.

 

 

i-surance has helped several distribution partners to avoid potentially running their business into the ground by taking over their existing insurance programs at short notice. There are only a few weeks left before the dreaded Brexit date…Should you be a professional facing this impending crisis, don’t hesitate to contact i-surance here. They may very well be your saviour in need if Brexit hits with full force!

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