What does the EU referendum mean for UK insurance?

Prime minister David Cameron’s pledge yesterday to hold a UK referendum on leaving the European Union (EU) has grabbed attention around the world, but what could the effect be on UK insurers and brokers?

For one, the announcement alone is likely to create uncertainty among investors in UK financial services. Investors like calculated risk, and Cameron’s announcement could be enough to deter investment just as UK general insurance has managed to become a magnet for foreign merger and acquisition activity.

An IMAS report in October last year showed that most of the major general insurance deals in the 21 months to September 2012 involved overseas capital. Specially, 63% of the 56 acquisitions of UK general insurers, brokers and support services firms with turnovers of more than £5m, were made by foreign investors.

Part of the reason for this is that London is now seen as the first logical step for foreign companies looking to expand overseas, so the City will be hoping that Cameron’s speech does not derail this.

Future implications

If the referendum does take place, insurers believe regulation and market competitiveness could also be affected.

PwC global insurance regulatory leader Paul Clarke believes that if the UK dropped out of the EU then it is likely to be forced to ape existing Solvency II measures to stay competitive, but would not have a say over Solvency II itself.

Biba chief executive Eric Galbraith thinks the outcome of a referendum is uncertain, but hopes it would help increase the competitiveness of the UK market.

Of course, the best anyone can do currently is speculate on this issue, but the insurance sector must be hoping that Cameron plays his cards right.