Theresa May’s draft EU withdrawal agreement has drawn a mixed reaction from players in the broking and insurance sectors, with the matter of equivalence continuing to stir uncertainty and perpetuate passporting concerns for intermediaries.
Christopher Croft, Chief Executive Officer of LIIBA said today in a statement that, while it is encouraging to see a dedicated section on financial services, “we have to hope that the fact the draft is solely built around the concept of ‘equivalence’ is for the sake of brevity and simplicity.”
Otherwise, Croft states that those who have no equivalence regime have cause for serious concern. As do their clients.
“The current European legislation covering insurance brokers – Insurance Distribution Directive – has no concept of equivalence or the market access rights it might grant. Without this it is unclear what the agreement published yesterday would mean for our sector,” he added.
Croft had previously explained that most regulators are expecting the European Insurance and Occupational Pensions Authority (EIOPA) to provide clarity for brokers but that the current understanding is EIOPA does not intend to so.
Croft explained this is because the scope of IDD is a matter for the European Commission. However, the commission is unlikely to do anything that could be seen to be prejudicing the negotiations.
Interestingly, S&P Global claimed recently that financial institutions (FIs) are now “past the point of no return” in regard to the implementation of their Brexit contingency plans, which can no longer be reversed whatever the outcome of the UK’s negotiations with the EU.
The firm stated that many FIs have already begun to trigger aspects of their contingency plans, such as cross-border legal entity mergers and the establishment of additional licensed entities, which cannot be undone even if, against all odds, the UK decides to remain in the single market or EU.
S&P’s analysis is relevant to re/insurance companies in the UK market, many of which have been preparing for Brexit by establishing new European hubs.
In addition, the British Insurance Brokers’ Association (BIBA), while welcoming of the progress made, remains concerned over the lack of a solution for UK brokers trading with retail and commercial customers in Europe
Steve White BIBA’s Chief Executive said, “Our biggest concern is that as things stand at the moment the arrangements do not work for insurance brokers.
“It is vital that this gaping hole is resolved, therefore we are particularly interested in how the agreement in this area could aim to be as closely related as possible to our current market access going forwards.”
Clare Lebecq, CEO of the London Market Group responded positively to the draft agreement, but also outlined the importance for including a provision for insurance broking services.
“The LMG welcomes the Cabinet’s decision on the draft withdrawal agreement as it is an important step closer towards avoiding a cliff edge that would cause significant disruption to clients across the UK and the EU,” said Lebecq.
Lebecq added that the LMG has consistently highlighted the mutual benefits of both the EU and UK in an enhanced equivalence regime for commercial re/insurance trading, “including a provision for insurance broking services.”
“We will continue to play an active role in representing the interests of our clients and firms as we work with the Government on a suitable framework,” she said.
Bob Haken, an Insurance Partner at international law firm Norton Rose Fulbright, believes the focus on equivalence is unfortunate for the insurance industry as, “unlike some other financial services, equivalence under Solvency II does not grant market access for insurance business.”
“For reinsurance, there is a glimmer of hope in that there is a commitment to reaching equivalence decisions as soon as possible after 29 March 2019, endeavouring to conclude those assessments by 30 June 2020,” Haken said.
“However, in a missed opportunity, neither document recognises the important issue of contract continuity following the expiry of the transitional period, meaning that the contingency plans that many hoped would be unnecessary will have to be deployed by the end of 2020.”
Meanwhile, addressing an audience yesterday in the Old Library at the Lloyd’s of London headquarters, Lloyd’s of London Chairman Bruce Carnegie-Brown, stated that brexit for Lloyd’s is “in the past.”
“We opened our office in Brussels yesterday, and that is intended to Brexit proof Lloyd’s by giving us an entity within the European Union, in whatever kind of Brexit emerges,” he said.
“But we have a subsidiary of Lloyd’s in Brussels and are now able to write business inside the Union and outside.”
