According to a report by newspaper the Financial Times, in the summer BaFin wrote to UK insurers with operations in Germany. The regulator asked for details on their “emergency plans” for all Brexit scenarios, with an emphasis on a hard Brexit – when no exit deal is reached between the UK and EU.
The letter highlights the growing concern that insurers will not be able to fulfil their promises to customers after the UK leaves the EU.
Passporting rights
Bruno Geiringer, a partner for Pinsent Masons’ life insurance and wealth management practice, says there are currently passporting rights that allow many UK insurers to underwrite risks and provide other insurance services in the European Economic Area (EEA).
These rights range from personal pensions to the kind of complex commercial policies sold in and around Lloyd’s of London.
"Nobody still knows what exactly is going to happen when the two-year exit period comes to an end," - Bruno Geiringer.
However, these passporting rights would come to an end in March 2019 when the UK and EU split, unless a trade deal is agreed.
If these rights do disappear then insurers may end up in a predicament where they face a choice of breaking a contract or breaking the law.
“Faced with this drastic outcome, regulators around the EU are therefore rightly asking UK insurers to disclose their contingency plans,” Geiringer says.
Time running out
As time ticks away, Geiringer says it is becoming increasingly concerning for insurers and trade bodies with the apparent lack of progress and public details about Brexit negotiations.
He adds it is now high time for regulators to agree to a process that will protect policyholders who will otherwise be caught in a “potentially huge mess”.
“The collection of data about contingency plans is all well and good, but 16 months after the referendum, nobody still knows what exactly is going to happen when the two-year exit period comes to an end,” Geiringer says.
A wider impact
A hard Brexit would also impact European insurers doing business in the UK, as they too will lose passporting rights, Geiringer warns.
He says the UK and EEA-based insurers could not keep waiting for a deal to be signed and some would begin implementing contingency plans to preserve value for shareholders and provide some certainty for their business.
“If nothing is done soon regulators in the UK and the EEA could have some explaining to do to show that they are taking appropriate action in the lead-up to Brexit to protect policyholders,” Geiringer says.
In April, the UK regulator reportedly contacted insurers asking for similar details about their post-Brexit plans, although it is understood BaFin is the first overseas regulator to ask, according to the Financial Times.
