The Big Question January – February 2021: How will Brexit impact the insurance industry this year, now that the UK has a trade deal?

Peter Blanc, group chief executive, Aston Lark

I think most of us hoped common sense would prevail and there would ultimately be an all-encompassing trade deal including the seamless continuation of insurance arrangements between the UK and EU, effectively continuing the ‘passporting’ arrangement that has existed until now.

Sadly, our worst fears have been realised as we’ve left the EU without any proper trade deal as far as financial services are concerned and no agreement as yet on equivalence going forward. As a result, EU risks will have to be insured by EU brokers – so UK brokers with European clients need to transfer those clients to EU brokers.

Fortunately, Aston Lark has acquired two European brokers – Robertson Low and Wright Insurance Brokers in Ireland and has arranged London Branch status to enable us to continue providing cover, but I hear of many brokers who haven’t yet solved this conundrum.

When all the fall-out has occurred, I hope we’ll eventually negotiate our way back to where ultimately all our customers (both in Europe and the UK) want our respective regulators to land - giving them the ability to choose where they insure and with whom. Providing consumers with choice and protection should be the goal of both the EU and UK…let’s hope the politicians remember that.

Mathew Rutter, head of insurance advisory, DAC Beachcroft

The UK/EU trade deal does not directly benefit the UK insurance industry, although it will help some insureds by comparison with no deal. It is reassuring that a framework for co-operation in financial services between the UK and EU is promised, but this is thin gruel compared to what went before.

I expect to see some bedding down in 2021 of the arrangements insurers and brokers have put in place to deal with Brexit, with some uncertainty remaining as to exactly what activities can and cannot be performed cross-border. It would not be surprising to see further clarification from EIOPA (European Insurance and Occupational Pensions Authority) and perhaps also some regulatory challenge – not because the insurance industry is consciously trying to bend the rules, but because the rules themselves are not always clear or well-understood.

We will probably have to wait until after 2021 to get a clear sense of whether the UK regulatory regime may start to diverge from the EU model, and in what areas. The pressure always tends to be in favour of more regulation rather than less, so I do not expect the UK to adopt a so-called “Singapore approach” to regulation any time soon.

Will McDonald, group director of sustainability and public policy, Aviva

We’ve known for the best part of the year that financial services were unlikely to be part of the trade deal, so there was little surprise when that turned out to be the case. The insurance industry and Aviva were well prepared for all Brexit outcomes. There are still some issues, including whether the EU eventually agrees to eliminate the need for motorist Green Cards, but we do not anticipate any significant operational impacts on our general insurance business.

Given that there is little provision for insurance in the trade deal and no formal ongoing link to the EU regulatory regime or policy, a major industry focus will be on what the UK policy response for financial services will be. Now that we own our future, we need to decide what to do with it, and quickly.

This ranges from the UK’s wider future regulatory architecture to the specifics of the insurance prudential regime.

Whatever the policy response is, the shift from the pan EU system to the ability for UK authorities to tailor rules for the needs of a market of one, compared to 28, in a more agile way will bring a number of significant changes to what we have all been accustomed to.

Carol Hall, assistant director, European and international affairs, Association of British Insurers

As expected, the references to insurance and the wider financial services industry in the agreement were minimal. It was, however, important to get an agreement in order to set a good foundation for positive future cooperation with our European neighbours.

Allowing for the continuation of the flow of personal data between the UK and EU for a maximum of six months is helpful, especially if it allows more time for the European Commission to continue its adequacy assessment.

It was encouraging to see the announce plans for a Global Health Insurance Card to replace EHIC. But more details on the scheme are needed and it will still be no replacement for travel insurance.

The UK’s continued participation in the motor Green Card Free Circulation Zone still needs to be confirmed. It is imperative that the EU Commission ratifies this quickly and it will be something we continue to press for until resolved.

And we will continue to press the importance of reinsurance equivalence for the London Market.

Work is now underway on a Memorandum of Understanding for financial services which will be important in shaping how the EU and UK relationship evolves in the future.

So, while the deal provides a good foundation and is certainly better than a “no deal” outcome, for the insurance sector there is still work to do with government to ensure the industry and our customers are not affected unnecessarily.

Bart Patrick, managing director for Europe, Duck Creek Technologies

After years of the threat of a ‘no-deal’ Brexit, the news that the UK had secured a trade deal with Europe was a slight relief. But how will Brexit continue to impact the insurance industry? In short, it must catalyse change.

Contrary to common opinion, I like change. Change inspires innovation, and for the insurance industry, Brexit must be the spark the industry needs to fundamentally inject some action to overcome this persistent low-growth – high-cost market. I certainly hope that some good can come out of all of this.

Although insurance companies took preventative action where they saw fit, by and large, consistent innovation and investment has not been the outcome. This goes for both European and UK markets. Any close examination of insurance results in Europe and the UK shows that despite the hard market, insurers, for a multitude of reasons, struggle to make money.

Global insurers often tell me that Europe is a low-profitability market – UK included – so investments are being made instead in growth insurance markets, such as LATAM and APAC. The new economic paradigm must encourage the UK and European insurance markets to grasp the opportunity to show the rest of the world how wrong this perception is.

Neil Clutterbuck chief underwriting officer, Allianz

The deal brings a level clarity but there is still much to be ironed out and we won’t have felt many of the consequences yet. New checks and administration for imports and exports is likely to be felt across many sectors and will potentially disrupt supply chains including parts for motor vehicles.

Cross-channel trade in automotive parts accounts for almost €14bn and the industry relies on smooth just in time deliveries. If parts are harder or more expensive to source this could contribute to claims inflation. Given that Covid-19 has also impacted supply chains there is also a concern for underinsurance if stock is not moving in its usual way or potentially being stockpiled.

Longer term there are also questions over the sharing of data and talent pools with reduced freedom of movement.

From a business viewpoint Brexit is one of a number of macro-economic factors facing the UK. In and of itself it may not change the risk profile of insurance customers but, it may drive changes in trading behaviour which could influence their insurance needs.

Risk management is going to play an even greater role in operational resilience for businesses and is an opportunity for the industry to support customers.

Steve Cross, group head of claims, Markerstudy

To protect the interests of the customer and the industry itself, insurers are continuing their work in many areas post-Brexit including applying pressure to allow the UK to remain part of the Green Card Free Circulation Zone. Alongside this the UK will maintain its efforts to accede the Lugano Convention to avoid the requirement for the insurance industry to navigate changes in cross-border motor claims handling, previously covered by the various motor insurance directives/regulations governing jurisdiction.

From a more day to day perspective, currently we’re not seeing any obvious impact on the supply chain which is largely down to Covid keeping claims levels down, resulting in favourable stock levels.

Insurers will be working closely with their suppliers to monitor the situation, looking at their ability to provide services in a timely manner and to secure access to the required goods, for example parts/paint for body shops and carpets and white goods for home claims, and to ensure contingency plans are in place to minimise any impact on their customers.

This is particularly important as the knock-on impacts of this will be felt across the management of both customer and third-party claims.