The political changes on the horizon have the potential to cause massive shifts in the insurance market
London is a hub of international business, attracting industry experts from all over the world. The capital makes up the largest and most specialised market in the world when it comes to commercial and speciality risk insurance. Indeed, the insurance sector pulls in up to £60bn in gross written premium every year, and represents 10% of all financial services in the UK.
However, that could be about to change, as last year, the United Kingdom voted to leave the European Union. This is a decision that will likely have huge ramifications for the City, not to mention the insurance market. Though much is still uncertain about the way in which Brexit will be handled- and whether Britain will retain access to the single market. Insurance companies are already preparing for the huge changes on the horizon, many of which have the potential to completely transform the insurance market worldwide.
Indeed, market volatility will likely be the first thing to affect the insurance market. Brexit will have significant implications for the insurance market, as rules and regulations will need to be reassessed and renegotiated with the European Union in order for businesses to function abroad. The EU currently operates under a legislative system called Solvency II, which regulates and harmonises the way insurance is done throughout the union. Incorporating elements such as a minimum standard of customer protection, supervision, and improved integration with the EU market, Solvency II allows insurance companies based in Britain to operate in the EU, and vice versa.
Though it’s extremely likely that Britain will keep the same regulations in place, the UK will still need to be classed as ‘equivalent’ under EU law in order to be treated equally to other member states and gain full access to the EU market. If there is a delay in the country being granted equivalence, then British insurance companies could be treated less favourably than rival EU-based insurers by EEA regulators. In addition, expect regulations and laws to be renegotiated before Britain can rejoin the EU. This will likely lead to a period of market uncertainty that may impact insurance businesses across the country, causing ow interest rates that will only be increased by insurance companies moving their commodities, bonds and investments across to the EU.
However, the issue that has the potential to most affect the way in which the City does business is passporting. Many insurance companies depend on passporting, which allows free access to the single market, to conduct business in the EU or set up satellite offices, without an undue amount of regulation or taxation. This system allows insurance Brokers in London to access a market of 500 million people, and nearly 5,500 UK-registered companies use passporting rights to operate abroad. Brexit therefore has the potential to change the way many companies do business: if access to the single market is lost, those dependent upon passporting will suffer. Furthermore, companies who have satellite offices in Britain will need to obtain authorisation to practice there, whilst UK companies who operate abroad will have to do the same.
As a result, companies are starting to look elsewhere in order to ensure that they retain access to the single market. Lloyd’s of London, which gains 11% of its revenue from Europe, has recently announced plans to open a satellite office in the EU. Though Brussels and Luxembourg see Brexit as a chance for new business- and have attracted big names like RSA, Lloyd’s and CNA Hardy, other companies such as Admiral, Royal London and Standard Life look set to choose Dublin as their new base of operations. Given that the language is the same, as are many of the regulations governing trade and insurance, many companies are considering making the move; expect more job opportunities to open up abroad in the future for insurance experts wanting to try life in foreign climes. Conversely, this may threaten London’s ability to attract experts worldwide; furthermore, if EU nationals leave, more job vacancies will also open up in the City.
Brexit also offers an unparalleled opportunity for insurance companies to grow, and even turn their attention to other sources of business. Due to the difference in legislation and regulation between the EU and American insurance markets, businesses have found it harder to flourish; however resetting industry regulations in the UK could open up an entirely new market for business. Though the market is currently in flux, and the future seems uncertain, London’s reputation as a hub of international expertise, with a respected system of regulations, will ensure that the insurance market will always find new opportunities and jobs, whether in the UK or abroad.