Back in October, chancellor Philip Hammond admitted the government is “alive to the risk” that leaving the EU without a Brexit deal would create legal uncertainties for UK cross-border pensions and insurance arrangements in Europe.
The uncertainty – exacerbated by the resignation of Boris Johnson and David Davis from cabinet on Monday 9 July – has prompted the IUA to draft a clause which allows a ‘contingent’ EU-based insurer to step in and fulfil any policy obligations that the original insurer is no longer able to cover once a defined ‘Brexit event’ occurs.
Difficult drafting
Chris Jones, the IUA’s director of market and legal services, said: “A number of other market clauses have already attempted to address the issue of contract continuity, but it has proved difficult drafting a solution that covers all political eventualities.
“Another problem has been catering for the many different corporate structures, both currently present in the London market and planned by firms as part of their Brexit contingency responses.
“Consequently, a key concern of the IUA’s new clause has been to ensure that the legal principles underpinning the contingent insurer approach are sound and that the terminology and intent of the wording is as clear as possible,” he said.
Reassurance for some
Insurance expert Tobin Ashby of law firm Pinsent Masons said: “Insurers will still be hoping that a political solution to the problem for cross-border financial services will emerge. However, in line with repeated warnings from insurance regulators, firms are expected to have good contingency plans in place now.
“There will be some reassurance in the market around the careful development of this clause by the IUA. The success of the operation of the clause, should it be triggered by a relevant Brexit event, will be dependent on firms’ individual operational circumstances and legal structures.
“It is therefore not an answer to all insurers’ Brexit challenges.”
Ashby continued: “As the IUA points out in its commentary to the clause, for some insurers there will be no suitable ‘contingent’ insurer within their corporate group and identifying such an insurer outside of their group may not be viable.
“However, for those that can identify a suitable contingent insurer, where it is possible to enter into appropriate terms with them, the clause will offer reassurance around this difficult issue.”
Existing policyholders
It is unlikely, however, that the clause could be retroactively applied to in-force policies.
Writing earlier in June, Acuity Consulting’s Simon Willoughby highlighted the lock-out risk for existing policyholders of EU cross-border life companies.
