Brexit means Brexit: insurers to adapt to a new world
Conscious uncoupling is the process whereby couples go through a process of separation which aims to make the process as painless and as civil as possible. While it is a relatively new term, it is one which has gained a lot of public attention.
The conscious uncoupling process of the UK from the European Union (EU) began in June when the British public went to the polls to vote in a referendum about their desire to stay within the EU. While most expected sanity to prevail, the UK ultimately voted to leave the block citing ongoing immigration issues as a reason for the vote.
As it stands
The fallout from the vote was immense. The Pound saw an overnight loss, which turned out to the biggest loss in over thirty years as panic took hold of the London Stock Exchange. These losses were stabilised though as the UK government made an announcement that the result of the referendum was non-binding and was only an advisory result. As the highest legal authority in the UK, government could have merely passed a law which went against the leave vote.
This has not been the case. Another gift that the Brexit vote left the UK with was a new Prime Minister. David Cameron stepped down and after a brief period of political uncertainty, Cameron’s counterpart Theresa May took over and she is adamant that Brexit means Brexit. She followed this stance by announcing that Article 50 will be signed by no later than May 2017 which will usher in a two year negotiation period on the UK’s exit.
Regulatory nirvana
One of the characteristics of belonging to the EU is that a country is bound by a plethora of laws which makes it possible for companies within the EU to operate on an equal footing. Because clients are not ring fenced by traditional borders, a policyholder (in the insurance sense) is seen as a European rather than a German or a Swede or a Scot.
Speaking at the recently held Norton Rose Fulbright Insurance Seminar, Liam O’Connell – a Partner in Norton Rose Fulbright’s London office – said that this may change as the uncoupling takes place.
“Before Brexit took place, the UK (and London in particular) was seen as the largest global centre for commercial and speciality risk. In 2013, gross written premiums from these types of risks amounted to £60 billion; £6 billion of this came from within the EU. It made up 20% of London’s gross domestic product, so there is a lot at stake here,” said O’Connell.
He added that it is clear that the UK government needed to find a way to retain policyholders. Will Brexit make insurers within the EU more attractive? Will UK insurers have to reverse their business structures which would mean that they will lose their ability to easily sign up policyholders who live within the EU. All of this will have to be negotiated during the two year exit process.
Up in the air
The renegotiation of Britain’s involvement with the EU could mean anything. If the UK follows the Norway model of trade with the EU, companies would be able to operate within the EU as if Brexit never happened. However, to follow this model would mean that the UK pays a certain monetary value to the EU which will be used to resolve issues within the block. One of these is immigration issues; an issue which saw the UK leave the EU in the first place. The odds of the UK following this model is slim indeed.
“The insurance industry within Britain is now looking at itself in the mirror and asking whether it will retain its position as a global insurance powerhouse. Insurers within London are particularly worried about this. A regulatory nirvana may be the best way to lower barrios of entry into Britain so that it can retain its position. The country needs to encourage foreign direct investment to reduce the possibility of job losses,” said O’Connell.
The South African impact
What will this mean for the South African market? O’Connell said that this will depend on the nature of the uncoupling and the trade agreements that are put in place following the process.
If the Pound takes a beating following the exit from the EU, South African companies who are based in London could suffer significantly.
There will also be a mixed bag when it comes to investment. O’Connell points out that gold will become more attractive while other equities will face a period of volatility.
Editor’s Thoughts:
O’Connell pointed out that it is too soon to say unequivocally say whether Brexit will be a threat or an opportunity to the insurance market. He added that London was been at the forefront of global and speciality risks for a long time and it will most likely stay that way. However, it will be interesting to see if this is actually the case. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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