Blog: Brexit impact on insurers could be significant

Rodney Bonnard is head of UK insurance, head of P&C risk and actuarial at EY

The leave vote has the potential to have a significant impact on insurance companies’ operations and the needs of their clients. The biggest impacts could be felt in the non-life market, where EU passporting rights and Freedom of establishment and freedom to provide services are the basis for a significant proportion of the market. In addition, corporate structuring, capital tax and business flows for all types of insurer could be affected. Personal Lines, Commercial Lines, Captives markets and closed book consolidators are all vulnerable and should be remembered as the Government negotiates the UK’s exit from the EU.

Insurers shouldn’t fear a rewrite of the rule books but death by admin is a concern

Admin might not be the first thought on most peoples’ minds following the leave vote but it should at least rank highly. This result presents the insurance industry with a significant administrative burden - the need to reapply for licences, give clarity around cross border trades etc. are all time-consuming but incredibly important for the industry to function. The concern is that the admin burden might distract insurers from the day job.

In terms of regulatory impact we don’t believe that the industry will see much change, day to day. The UK regulators have already rigorously implements the regulations.

VAT value added? Hard to tell until the dust settles

With the UK potentially free to make its own rules on VAT there could be some cheer for the insurance industry as the threat of VAT on insurance outsourcing might well never come to pass. On the other side of the coin however is the potential for significant VAT issues associated with restructuring and relocations of supply chains. For some firms, particularly those looking at moving offices and reorganising their internal operations, the benefits of avoiding VAT in one area might well be wiped out by liabilities incurred by the need to change their business models.

Parts of our corporate tax legislation, including in the treatment of captive insurers, give preferential treatment to EU subsidiaries as compared to those outside of the bloc. Additionally many insurers have benefited from tax claims based on EU discrimination arguments in respect of on investment portfolios or on the treatment of overseas subsidiaries and losses. These areas will likely need revisiting.