Passporting is key issue for underwriters
Posted on: 12 September 2017
The number one issue concerning many underwriters is that of access. Presently, UK insurance firms benefit from direct access to a single insurance market covering 28 countries with some half a billion people.
Passporting was put forward as one of the biggest reasons for remaining in the EU as it allowed insurers to conduct cross-border in the European Economic Area without requiring further authorisation or incurring additional local costs.
Losing this right could be problematic for insurers. We don’t know if the UK’s negotiators will be able to secure ongoing passporting rights or if an arduous and expensive country-by-country approval process will be required.
Pundits are outlining a few options. Firstly, the UK could stay within the single market, probably by joining the EEA – this would be along with other EU countries and also Iceland, Liechtenstein and Norway. However, for the UK as a whole, this is likely to be an unpopular choice since it also means accepting the free movement of people and rulings from the European Court of Justice along with contributing towards the EU budget – antipathy towards these were a driver for the ‘leave’ vote.
Alternatively, UK businesses could establish subsidiaries within the EU and this would allow passporting rights - Dublin is one city hoping to benefit.
Clearly, this is not so much of an issue for large organisations or where subsidiaries already exist, but it would be impractical and too costly for some.
Meanwhile, equivalence is also being mooted and this means allowing cross border trading agreements where countries recognise each other’s regulatory standards. This can appear an attractive model but it is not without issues. Critics say equivalence deals can be easily revoked and there can be less certainty.
So what will happen with passporting is an important issue, ratings agency Moody’s has said the risks will be ‘manageable’. The ABI, the Lloyd’s Market Association and Lloyd’s directly will be continuing to lobby hard to ensure there are workable solutions and that Brexit does not result in our insurance sector being weakened.
No one is saying that Europe is unimportant – clearly it is, but there are also pro-insurance voices saying there will be more scope to do business globally once Brexit is complete. The MP for the City of London and Westminster, Mark Field, is among those taking a bullish approach to Brexit, pointing out that our insurance market should be looking further afield at territories such as Singapore, Qatar, Dubai and Bermuda as these present exciting export opportunities for the UK.
Still, there will always be detractors and Sean McGovern, who was then chief risk officer at Lloyd’s, said last year: “We must recognise that, if the UK leaves the EU, other countries may show less appetite for making agreements with a UK of 63 million customers than they do with an EU of 500 million customers. Negotiations to replace EU trade deals would take years, without any guarantee that we would get the same quantity or quality of deals. Moreover, the UK would not jump to the front of the queue – other countries are already busy working on deals, including with the EU.”
Even so, while some have claimed that EU negotiators may want to ‘punish’ the UK, it is also worth remembering that European insurers will still want to trade with the UK and they will not want to lose access. This is a key reason why some type of mutually beneficial deal may result.