No level playing field in Brexit insurance run-off
Preparing for a no-deal Brexit has been made harder by every EU jurisidiction taking a different approach.
Although it is increasingly difficult to predict what will happen next in the Brexit process, a no-deal Brexit remains a real possibility and insurers are expected to be prepared for it. Many insurance groups have reorganised their operations; others, however, are relying on transitional arrangements with respect to run-off of existing contracts. The effect of a no-deal Brexit on run-off business remains far from clear and, as it is based on the local legal and regulatory position, differs in each EU27 jurisdiction.
In February the European Insurance and Occupational Pensions Authority (Eiopa) published guidance for national regulators on run-off of existing contracts in the event of a no-deal Brexit. Insurers may have hoped these recommendations would provide the basis for a unified approach, but that has not been the case. The guidance focused on orderly run-off, stressing policyholders should continue to benefit from rights under their policies and suffer as little disruption as possible.
The Eiopa guidance is not legally binding, so firms cannot rely on it and unfortunately it has not been implemented in a consistent way across the EU27 countries; and in some circumstances not at all.
Generally, where jurisdictions have sought to address insurance and implement the Eiopa guidance, the measures announced provide existing contracts written by UK insurers will remain in place following a no-deal Brexit. However, when it comes to the detail, there is significant variation and each jurisdiction has taken a different approach.
Many jurisdictions, for example, impose time limits on how long existing contracts may remain in place: in Ireland this is three years; in Germany 21 months; in Spain only nine months. While it may be possible for some insurers to run-off existing portfolios in this time, for life and longer-term insurers these transitional periods will be useful only as breathing room to implement a more permanent solution.
Different registration and notification obligations also apply over jurisdictions. Ireland, Italy, Luxembourg and the Netherlands require insurers wishing to take advantage of transitional measures to notify or register with the regulator. France imposes a different notification obligation, requiring insurers to write to customers by registered mail both immediately after Brexit and two months before the end of their coverage period, explaining they are no longer able to write new cover.
A handful of jurisdictions specifically discuss events that can happen during the lifetime of a policy. In Germany, amendments, renewals and extensions to existing policies are prohibited except where the existing contract contains a unilateral option benefitting the insured. In most jurisdictions, however, the measures announced are not this detailed.
Insurers seeking to rely on transitional arrangements should analy¬se their portfolios to identify any jurisdictions where they may have run-off business and determine any registration obligations, notification requirements or time limits that might apply. Where the transitional arrangements are not sufficient and a Part VII business transfer may be required, there is value in starting this process as soon as possible. Part VII transfers will still be available for UK to EU transfers post-Brexit, provided they have initiated a transfer, paid the regulatory fee and appointed an independent expert before Brexit day.
With October 31 approaching it seems increasingly unlikely insurers will receive a great deal of further guidance and will have to prepare as best they can on the basis of the available, imperfect information.
This article first appeared in Insurance Day