Insurance companies and their customers will be affected by the outcomes of Brexit. Here we explore three key areas the industry is addressing:
1. EU Passporting - this is a term used in financial services and allows insurers who are authorised in any EU or EEA State to trade freely and pay insurance claims, with minimal bureaucracy.
The withdrawal of these passporting rights could mean insurers, whose customers have international operations or individuals who insure their overseas assets, are prevented from settling their customers’ claims.
To avoid this uncertainty, insurers have been setting up new subsidiaries overseas and applying to the Courts to transfer existing customer policies to these new companies.
2. Free movement of capital – insurers have been able to trade across the EU without having to hold regulatory capital, a margin required to be kept for rainy days, in each EU country.
The consequences could be that we begin to see insurers withdrawing operations from a number of countries or having to raise new finance to capitalise existing ones. This could add to cost, reduce competition, and impact jobs.
3. Climate Change – many insurers are affected by changes in weather patterns because they insure against natural catastrophes such as tsunamis and earthquake. Insurers, who paid out USD135 billion in 2017 * for these types of claims, view a departure from Brexit as weakening the EU’s overall bargaining power and the ability to negotiate reductions in carbon emissions. This, they fear, could lead to further global warming, and more catastrophes, forcing them to put up insurance rates. Communities and businesses exposed to these events could consequently find themselves uninsurable or priced out of insurance completely.
*Reuters January 2018
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