The international Underwriting Association (IUA) has published a clause aimed at clarifying how firms will continue to pay claims if adequate transitional arrangements surrounding Brexit are not agreed.
The Brexit Contract Continuation Clause will benefit insurers that currently rely on the EU financial services passport to conduct cross-border business between the UK and Continental Europe.
After March 2019, such insurers may not be licensed to continue providing cover, or pay claims, on existing contracts.
The new clause allows risk to be placed with both a UK-domiciled insurer and a ‘contingent’ EU-based insurer, allowing the latter to step in and fulfill any policy obligations that the original carrier is no longer able to cover in the event of a turbulent Brexit.
The clause’s use, however, is not compulsory and firms are free to adopt and adapt its provisions as they see fit.
The IUA’s Director of Marker and Legal Services, Chris Jones commented, “The Brexit process continues to be quite uncertain in the nature of its final outcome and the future trading relationship trading relationship between the UK and remaining EU states.”
“A number of other market clauses have already attempted to address the issue of contract continuity, but it has proved difficult drafting a solution that covers all political eventualities.”
“Another problem has been catering for the many different corporate structures, both currently present in the London Market and planned by firms as part of their Brexit contingency responses.”
“Consequently, a key concern of the IUA’s new clause has been to ensure that the legal principles underpinning the contingent insurer approach are sound and that the terminology and intent of the wording is as clear as possible.”
