UK risks Brexit ‘nightmare’ for insurance industry next year unless Government breaks political deadlock

The UK risks a nightmare ‘no deal’ scenario if political progress cannot be made, says global law firm Kennedys in its latest insurance industry report, which identifies six post-Brexit requirements for the market to secure following the announcement of the implementation period until 31 December 2020.

The report, based on interviews with senior industry figures, reveals serious concerns at the prospect of an “enhanced equivalence” model for accessing the Single Market, described by one respondent as ‘a soft Brexit on goods and agriculture and a hard Brexit on Services and the City of London’.

Deborah Newberry, head of corporate and public affairs at Kennedys, said: “Our report clearly highlights a gulf between the type of Brexit which the insurance industry favours and the UK Government’s recent White Paper. Industry leaders do not favour the decision to abandon discussions on mutual recognition for services before the negotiations have even started. The UK should be bolder in batting for Britain’s insurance and financial services sector, given the sector’s contribution to the UK economy.

The proposed implementation period to December 2020 offers an opportunity for common sense to prevail while the UK and EU forge a new trading relationship. But the publication of the Government’s White Paper, and the political deadlock it has unleashed in the UK Parliament, potentially puts that proposal at risk. The UK must start to speak with one voice or risk losing whatever benefits might arise from Brexit.”

Brexit and the Insurance Sector: Towards 2020 and Beyond illustrates why the insurance industry must have a voice in shaping Brexit to serve the insurance industry’s long-term interests, outlining different Brexit opportunities and threats envisaged by senior insurance executives. The report discusses the various options for the future EU-UK trade relationship and those which are favoured by insurance executives. Executives from across the insurance market all agreed that much greater work is required in the development of any future equivalence regime – if that is the market access mechanism to be adopted – amid growing fears that the UK simply won’t be ready to Brexit in March 2019.

Ms Newberry added: “If the industry is to retain its significant market shares in key industries – 60% in global aviation insurance, 52% in energy and 33% in marine insurance, to name but a few – it is imperative for the UK Government to listen to the industry and protect its interests.

“The UK Insurance sector is a global success story. It provides employment for over 330,000 people, as well as helping many millions of businesses and householders to protect their lives and properties against everyday risks. With an export market worth £20bn annually, it is important that the UK sector maintains favourable single market access after Brexit. The insurance industry needs a significant voice in shaping the priorities for a future UK-EU relationship.

“Our six recommendations address the key concerns among insurers including the red lines for the industry.”

Richard West, partner and head of innovation at Kennedys, said: “Long term innovation in the insurance industry must also be safeguarded. This is core to maintaining the UK market’s leading position in established classes, as well as growth areas such as FinTech, InsurTech and RegTech. Our report outlines some key considerations including R&D, regional funding, data protection and the free movement of people which must be given greater focus.”

Kennedys, which specialises in litigation and dispute resolution and acts for major domestic and international (re)insurers, conducted interviews with senior insurance executives and CEOs from across the market, providing a snapshot of opinions within the UK insurance industry. The research, report and recommendations move away from the chorus of negativity of the current Brexit discussions and provide an objective view of the post-Brexit environment for one of the UK’s most important economic sectors.

Kennedys’ report outlines the following six recommendations to secure the UK insurance industry’s future post-Brexit: