BREXIT – What Does the Future Hold in Store for the Insurance Sector?
As we head closer to a decision being made on whether the UK will leave the EU, we look at the impact that a Brexit could have on the insurance sector.
Insurance businesses are nervous of a possible Brexit, which could impact heavily on regulatory costs both in the UK and the EU. This will then of course have a knock-on effect to brokers, intermediaries and ultimately the end-consumer. In fact, in a recent survey conducted by Insurance Day, 64% of respondents are against us leaving the EU for the very reason that the free-trade market across the EU will no longer exist.
British insurers are currently in a strong position being able to trade under the existing EU conditions and regulations. Huw Evans, Director General of the Association of British Insurers, said: “EU membership guarantees the right to do business in 27 other countries on an equal footing. The UK gains from this arrangement; we sell £21bn more in insurance and long-term savings products to the rest of the EU than they sell to us.”
How the regulations will change for UK based insurers is unclear. It’s possible that new EU regulations may work in favour of UK based insurance businesses. Just look at countries like Switzerland and Norway who are financially strong and thriving independently from the EU. In fact two of the largest and most successful insurance companies globally are based in Switzerland; Zurich Insurance Group and Swiss Re. Perhaps if the UK were independent, they would benefit from not needing to comply with EU regulations, and potentially could save the UK insurance industry a lot of money.
IPT rates are increasing across the globe based on individual government needs. And in fact the higher rate of IPT in the UK is well above the EU average and has been for many years. If Britain leaves the EU there may be pressure on the insurance industry to reduce tax rates to remain competitive.
Many business leaders are concerned about the possible risks of leaving the EU. A larger and even more costly affect may result in insurance and financial sector businesses being forced to relocate from the UK to the EU to continue to take advantage of “passporting” rights. This would impact on the entire UK economy and cause businesses to re-structure and re-assess long-term business strategies.
Will British Insurers be forced to terminate their business with the EU? Perhaps, but almost certainly, contracts will need to be reviewed and policies will need to be amended to ensure compliance with new regulations.
And how will the decision impact the influence that the UK has over the rules and regulations of the sector? “As a global insurance centre of excellence, the UK has a major influence in shaping the rules of the EU. And as the undisputed financial services centre of the EU, the whole of the UK is able to benefit from the jobs, tax revenue and economic prosperity this position brings.” Huw Evans, Director General of the Association of British Insurers.
Many businesses, including Lloyd’s of London are concerned that the change could lead to the strength of the UK economy being compromised and the threat of expanding economies such as China and India becoming larger threats to the UK.
In summary, the number of pros for the insurance sector to remain in the EU, by far outweigh the cons. As such, the industry experts and leaders have spoken, including Lloyds of London who strongly feel that we should remain in the EU. Perhaps the uncertainty of what will happen is the biggest issue here, especially in an unsurprisingly risk averse industry.