The Brexit effect on Insurance

by Heat Recruitment

Ever since the result of the EU referendum shocked the nation, businesses have been bracing themselves for impact as negotiations unfold. We may be six months away from our official exit date, yet uncertainty prevails regarding where we will find ourselves come March 29th. The longer questions go unanswered, the less time industries have to prepare, and for the insurance sector, that’s a worrying prospect.

In the days that followed the referendum, shares in insurance companies saw a sizeable drop, with some of the UK’s largest insurers such as Aviva and Standard Life falling over 15%. Two years later and the debate rages on regarding the effect our exit will have on the insurance industry.

Of course, it’s understandable that this sector would find itself at the centre of doubt: as present, the UK manages £1.8 trillion worth of investments, making it the third largest insurance market in the world.

Unsurprisingly, this makes answering the question of how Brexit will affect the sector far from straightforward. Nevertheless, by laying out all the facts that are currently on the table, we can certainly scope out the potential risks and opportunities that lie ahead for the insurance sector.

The passporting problem

With Brexit drawing ever closer, considerable concern over market access in the near future continues to grow. Unless unrestricted access is achieved through the trade deal we manage to strike with the EU, March 29thwill see our ability to passport between the UK and other EEA states lost completely.

In leaving the EU single market, UK insurance firms would no longer be able to underwrite business throughout the EU: of course, this is a threat that most companies in the sector have already identified, but it doesn’t mean it poses any less of a challenge.

What’s more, under these circumstances, insurance firms holding an inbound branch passport would be forced to apply to the Prudential Regulation Authority if they wanted to keep trading in the UK. Of course, obtaining authorisation would take time, and it’s more than likely we would need to gain a clearer picture of the outcome of negotiations before authority could be granted.

Navigating a new compliance maze

Regardless of which side of the debate you found yourself on during the original referendum, we can all agree that simply dropping all UK laws upon the date of our exit would be fundamentally chaotic for the country. Indeed, many EU laws are already enshrined in UK legislation regardless of our outcome.

Nevertheless, an inevitable shake-up to the regulatory framework by which insurance firms operate is imminent: from the date of our exit, the UK insurance market will have the opportunity to create a whole new set of rules and regulations it deems fit in our post-Brexit nation.

As it stands, the UK operates on the EU framework known as Solvency II; a policy that applies to all EU countries that sell insurance products for homes, businesses, health, vehicles and more. Optimists would argue that Brexit presents an opportunity to relieve ourselves of the compliance burden that is enforced by the EU. An example of this is the EU Gender Directive, which sees UK firms unable to use gender when underwriting policies despite mounting evidence that suggests females are safer drivers on a whole and should therefore be entitled to lower premiums.

Our exit from the EU will give us the chance to review such policies and determine whether or not they are appropriate for our country. Of course, that isn’t to say we could completely cut every band of red tape, as the creation of new regulations will present the need for a revised compliance framework.

As is the case with EU legislation, firms in the insurance sector will need to ensure they have a handle on all their policies and documentation ahead of any rule change to ensure compliance with new regulations.

An adaptable sector

When it comes to Brexit, most questions just lead to further questions; discussions soon turn to heated debates and certainty is a concept we can barely remember. However, while issues surrounding our access to the EU market remain unresolved, the essential nature of the insurance sector means its place is secure in the future of the country irrespective of historic change.

At the end of the day, businesses still need to protect themselves from risk, as do homeowners, motorists and travellers alike. Long known for its adaptability, the insurance profession has already stood the test of time: whatever may come from the Brexit negotiations, society’s need for insurance products and the experts who drive the industry is unlikely to change any time soon.

There are plenty of opportunities to learn, adapt and progress your skills within insurance.

One thing is for sure, there has never been more of a dynamic time to work in the sector.

Speak to one of our insurance experts today to discuss your career options.

by Dave Bell