Each twist in the Brexit story raises new questions, not only for the British and EU governments, but also for global businesses. Insurance carriers are among those watching Brexit developments closely.
London, which prides itself on being the oldest and largest commercial insurance market in the world, has long been a hub for global commercial insurance. Some of the most innovative coverages in history have been written from London. The city‘s regulatory, business and political framework have supported such market leadership over the years.
Although London has lost some ground to Asia in recent years, in 2015, London still claimed a 5.8% global share of commercial insurance premiums and 12.3% of global reinsurance premiums.
Membership in the European Union, more specifically the single market of the European Economic Area (EEA), has helped London maintain a leading position in the global insurance market, partly because the EEA’s “freedom of services” provisions (FoS) make it possible for an insurer in an EEA country to write policies that are valid in other EEA countries under certain guidelines.
Those two factors—insurance infrastructure and EEA advantages—have made London a strategic location for insurers who provide coverage in the EEA, which includes the 28 EU member countries plus Norway, Liechtenstein and Iceland.
Against that backdrop, the particulars of the UK’s withdrawal from the EU could affect not only London’s stature in global insurance but also some policies covering businesses that operate in the EEA.
After the UK referendum in June 2016, British Prime Minister Theresa May said that honoring the Brexit vote requires the UK to withdraw from the single market. Currently that is scheduled to happen in March 2019. Possible terms of a transitional period and a future relationship are being debated daily.
Some in the UK have advocated for the UK to leave the EU but negotiate to rejoin the EEA, striking a deal similar to that of Norway, retaining freedom of services privileges and gaining the ability to sign other trade deals. A sticking point: Under EEA rules, the UK might have to abide by EU provisions allowing people to move across its borders, which many Brexit supporters oppose. The UK also might have to pay into the EU budget and abide by other EU rules, without having input on EU decisions.
Others in the UK support a looser free trade pact similar to ones Canada and South Korea have with the EU.
May has been looking at all options as she works to negotiate new post-Brexit trade agreements to minimize disruptions such as tariffs and other barriers to UK goods and services. But the outcome of those negotiations is not yet known.
For that reason, Gabriel Bernardino, chairman of the European Union's insurance regulator, has emphasized the need for European insurers to make contingency plans to ensure policies and claims payouts are not disrupted if Britain leaves the EU in March 2019 without reaching a trade deal.
It follows that businesses operating in Europe should check in with their carrier on how those contingency plans are taking shape. Businesses may be able to get a sense of whether the policies they carry could be impacted.
Zurich Insurance Group is well-positioned to manage the uncertainty.
Zurich Group’s headquarters is in Switzerland and the company has a global footprint in more than 210 countries and territories, including many EEA countries. Across Zurich, our international underwriters and colleagues are monitoring Brexit developments, planning for various scenarios and conferring with Zurich’s special Brexit team to help protect the interests of our global business customers and distributors as the Brexit story unfolds.
Zurich has over a century of experience successfully managing cross-border business, and Zurich is accustomed to working within local laws and the differing legal, licensing and regulatory requirements around the world. The UK will undoubtedly remain a key market for many insurers, including Zurich.
While it is not possible to know what will emerge from the Brexit process at this time, it is possible for global businesses to take steps to stay informed. Doing so can help them mitigate risks and maintain resilience in an ever-changing world.