Valdis Dombrovskis, the European Union’s (EU) financial services Chief, has warned that there’s no guarantee Britain’s Brexit vote won’t create an issue for millions of insurance and derivatives contracts, calling on firms to take measures to ensure continuity for policyholders, reports Reuters.
Following Britain’s vote to leave the EU and the subsequent lack of clarity and uncertainty surrounding the future of the financial services sector, insurance and reinsurance included, numerous companies have established hubs in remaining EU member states in order to ensure continuity in a post-Brexit world.
While it is clear Britain will be leaving the EU, it remains very uncertain exactly what type of Brexit deal it will get, and as such, EU lawmakers recently questioned Dombrovskis on whether he could provide EU citizens that purchased policies from insurers in Britain, with any guarantee their policies would payout in the event of a no-deal, or hard Brexit.
According to a Reuters report, Dombrovskis told the European Parliament that he would be “somewhat hesitant to give guarantees because negotiations are still ongoing and the outcome is still not 100 percent clear.”
So far, Britain and the EU have agreed on a “standstill” transition period until the end of 2020, which would see EU rules remain in force across Britain until this date. However, even this isn’t a certain, as Reuters reports that it’s part of the the region’s broader EU departure settlement, which itself is still being negotiated.
According to the Bank of England, £82 billion (US$110bn OR €94bn) of insurance liabilities involving a huge 48 million policyholders are at risk of being affected across Britain and the European Economic Area. While Reuters reports that derivatives with a notional £26 trillion are also caught up in Brexit.
Ultimately, without a proper transition, it could be illegal in certain cases to payout on an insurance contract or amend a derivative contract after March 2019, the month Britain is scheduled to leave the EU.
In his address to the European Parliament, Dombrovskis said that it was on the industry rather than EU authorities to ensure any contract disruption is avoided, while banks and insurers in Britain have called for existing multi-year financial contracts to be stockpiled and allowed to run their course.
For the financial services sector, which is a hugely important part of Britain’s infrastructure, the Brexit process remains frustrating and uncertain. And until the outcome becomes much clearer, it is likely that companies will continue to move business into new hubs that allow them to operate across the EU.
For policyholders, it seems only time will tell whether Brexit is going to have a negative impact on their policies, or whether a sensible and viable solution that secures continuity post-Brexit is achieved by Britain and the EU.
