Matheson has been advising risk managers / insurance buyers and corporate policyholders in relation to the particular impact of Brexit on non-life insurance policies and claims and planning ahead to minimise any disruption.
Large corporates based in Ireland typically have a suite of non-life insurance policies to cover a variety of risks, from what might be considered very standard policies to cover property damage or public / employers liability, financial lines policies to cover civil liability and directors and officers, to more bespoke policies to deal with cyber or other risks. Given the fact that the UK insurance market is the biggest in the EU, it is likely that at least some of the policies held by corporates based in Ireland will have been written by UK or Gibraltar licenced insurers.
From a risk management perspective, reviewing insurance policies to identify those that might be affected is crucial. In particular multi-year policies, long term policies, liability policies (which can give rise to long tail claims arising many years after the policy period), master policies covering risks situate in different jurisdictions and any policy governed by UK law should be reviewed. Policyholders should also be aware of the renewal dates on their policies and in particular any policies that are due for renewal immediately before the Brexit date. Some policies that were incepted post the Brexit vote may have “continuity clauses” and these should be reviewed.
It is also important to look at open claims notifications and in particular circumstances that have been notified to insurers in previous policy periods but have not yet given rise to a claim.
What impact will Brexit have on your insurance policies?
Insurance firms can currently provide services across the European Economic Area by way of Freedom of Establishment or Freedom of Services (“passporting”) without the requirement to be authorised in each country. However, as a result of Brexit UK and Gibraltar licensed insurance firms will lose their right to conduct business in Ireland under the passporting regime.
Many insurance firms in the UK and Gibraltar have been engaged in Brexit contingency planning for some time and have already taken mitigating actions. Irish based policyholders may have been already contacted by their insurers to advise that their policy has been transferred to a related entity in an EU jurisdiction as part of a “Part VII” portfolio transfer. Such transfers will have been approved by the relevant UK court and the court will have considered the potential impact of the transfer on policyholders. Policyholders in this situation will no longer have the protection of the UK Financial Services Compensation Scheme (for example in the case of a transfer into Ireland, Ireland does not have an equivalent scheme) but otherwise there should be little or no impact on their policies and cover. Policyholders should be aware however, that if they need to make a claim (or have existing claims), the claim will be made to a different entity than the one noted on the policy wording issued before the transfer.
EIOPA (the European Insurance and Occupational Pensions Authority) has issued recommendations to safeguard policyholders in the event of a “no deal” Brexit and has given national regulators a period of two months to confirm whether they comply with the recommendations. Given however that there is an element of individual state discretion in certain keys areas, there is still some uncertainty.
There is a risk however than not all UK insurers will have implemented their transfer plans before the exit date (1). For policyholders who have policies with such insurers, the position depends on whether or not the withdrawal agreement is signed.
In an effort to mitigate the potential impact of a no-deal Brexit, the Irish Government has published draft legislation (2) which will allow UK or Gibraltar licensed insurers to administer run-off business in Ireland for a period of three years. For policyholders, this means that the UK or Gibraltar licensed insurers can fulfil its contractual obligations to its policyholders and can continue to pay claims after Brexit. There may be issues however where claims take longer than three years to resolve or there are long tail claims which do not arise until after the run-off period. It is not currently clear what will happen to these claims if the relevant insurers do not transfer the affected policies to an EU entity during the run-off period. It may be that UK or Gibraltar based insurers claims will not be in a position to process any claims at all. During the run-off period, no new business would be permitted so when it comes to renewal, the policyholders would be unable to renew with the same UK or Gibraltar licensed insurer.
If Brexit proceeds on the basis of the Withdrawal Agreement, the status quo for a policyholder will be maintained until end December 2020. This means that insurers will be able to continue to write new business, renew policies and pay claims under existing policies. The position beyond that date will depend on the terms agreed between the EU and the UK, however, it can be expected that there would be some form of run-off regime that is at least along the lines envisaged in a “no deal” Brexit.
Policyholders who are stockpiling goods or materials in advance of Brexit should also be aware of the risk (aside from the increased exposure to theft or fraud) that they may find they are underinsured in the event of a loss. Suppliers who are shipping more goods in advance of Brexit should check their trade credit insurance is adequate to protect against any payment default.
Finally, while this is not a consequence of Brexit, where policies are governed by UK law, policyholders should continue to be aware of the impact of the UK Insurance Act 2015 and in particular the obligation that this imposes on policyholders to make a fair presentation of risk.
Whatever form Brexit ultimately takes, Irish policyholders with policies written by UK insurers need to be aware whether it will have an impact on their existing portfolio of policies, ability to renew and existing claims. In a “no deal” Brexit, policyholders may find over the next 12 months that there is an increase in the cost of some premiums or the unavailability of niche insurance products as direct result of Brexit although this should hopefully change as the market adapts to the post Brexit landscape.
For information on the impact of Brexit for insurance intermediaries, see also this briefing from Matheson’s Financial Institutions Group.
This article was co-authored by Senior Associate Aoife McCluskey.
- According to statistics published by EIOPA, as at November 2018, 124 (or 0.16%) of UK or Gibraltar insurance companies had no or insufficient contingency plans in place.
- Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019