EU and UK reach agreement over no-deal Brexit insurance rules
Regulators have agreed to continue to cooperate on supervising insurers if Britain leaves EU without a transition deal.
This story is reprinted with permission from the Insurance Coverage Law Center, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.
British and European Union regulators have agreed to continue to cooperate on supervising insurers if Britain leaves the European Union without a broader transition deal on March 29, according to the Bank of England.
The European Insurance and Occupational Pensions Authority (EIOPA) has issued recommendations for the insurance sector in the event that the United Kingdom (UK) withdraws from the European Union without a withdrawal agreement.
In case the UK withdraws from the EU without ratification of the withdrawal agreement, on March 30, 2019, the UK becomes a third country and UK insurance undertakings and distributors lose their right to conduct business across the EU27 Member States by way of freedom of establishment and freedom to provide services.
Cross-border insurance contracts
In principle, insurance contracts concluded before that date by UK insurance undertakings in the EU27 are valid after that date. However, the insurance undertakings would not anymore be authorized to carry out insurance activities with regard to these cross-border insurance contracts.
On December 21, 2017, EIOPA issued an opinion calling on the NCAs to ensure that insurance undertakings with affected cross-border business develop realistic contingency plans setting out measures to prevent insurance activity without authorization and ensuring service continuity after the United Kingdom’s withdrawal and the implementation of those measures. Many UK insurance undertakings, in particular with large cross-border business in the EU27, have already taken action and are implementing contingency measures.
Related: Switzerland and U.K. sign Brexit-related insurance agreement
However, the EIOPA said, there is a residual amount of insurance business in the EU27 for which UK insurance undertakings have not taken appropriate measures — as of November 2018, 124 UK insurance undertakings, representing about 0.16% of the total insurance business in the EU27.
The recommendations provide guidance on the supervisory treatment of residual insurance business with the objective to minimize the detriment to policyholders with such cross-border insurance contracts. The EIOPA said that NCAs should ensure an orderly run-off of the insurance business, including the appropriate supervision. UK insurance undertakings without authorization should not conclude new insurance contracts.
9 recommendations
Furthermore, the recommendations provide guidance on the application of relevant legal provisions with regard to cross-border insurance of UK insurance undertakings. The nine recommendations range from the authorization of third country branches, the lapse of authorization, the cooperation between the national competent authorities, and the communication to policyholders and beneficiaries to distribution activities. The recommendations include:
- Orderly run-off: Without prejudice to policyholder rights to exercise an option or right in an existing insurance contract to realise their pension benefits, the NCAs should prevent that UK undertakings conclude new insurance contracts or establish, renew, extend, increase, or resume insurance cover under the existing insurance contracts in their jurisdiction as long as they are not authorized for such insurance activities under Union law.
- Portfolio transfer: Provided that it was initiated before the withdrawal date, the NCAs should allow the finalization of portfolio transfer from UK insurance undertakings to EU27 insurance undertakings.
- Change in the habitual residence or establishment of the policyholder: If a policyholder with habitual residence or, in the case of a legal person, place of establishment in the United Kingdom concluded a life insurance contract with a UK insurance undertaking and afterwards the policyholder changed its habitual residence of place of establishment to a EU27 Member State, the NCAs should take into account in the supervisory review that the insurance contract was concluded in the United Kingdom and the UK insurance undertaking did not provide cross-border services for the EU27 for this contract.
“Besides the fact that UK insurance undertakings have taken appropriate measures for most the cross-border insurance into the EU27, there is a residual amount of business that would become unauthorized when the United Kingdom leaves the European Union,” according to Gabriel Bernardino, chairman of EIOPA. To ensure the protection of policyholders and beneficiaries concerned national supervisors have to ensure consistent supervisory actions and to cooperate closely and effectively.”
Related: