Good morning. Thank you very much for that kind welcome and for the invitation to address your conference today.
I’m sure I don’t need to tell you, but we live in very uncertain times. Germany have failed to make it out of the group stage of the World Cup for the first time since 1938. The hottest place in the UK last week was in North Wales, with a sweltering 33 degrees. And most surprising of all would be if Dani Dyer and Jack Fincham don’t win Love Island.
Unfortunately, I’m not going to spend the next 20 minutes talking about the World Cup, the weather or Love Island. And before you all rush for the door…I am instead going to focus on the political and regulatory uncertainty that faces our industry, with a specific focus on Brexit.
But first I should probably say a little bit about the ABI and this industry we all work for. For those of you who don’t know the ABI is the voice of the UK’s world leading insurance and long-term savings sector. We have over 250 members, from household names to specialist providers. Our role is to get the right people together to help inform public policy debates and engage with politicians, policymakers and regulators at home and abroad. We are the public voice of the sector, promoting the value of its products and highlighting its importance to the wider economy. We help encourage consumer understanding of the sector’s products and practices. In short, we are here to support a competitive insurance industry.
The UK insurance and long-term savings industry is the largest in Europe and the fourth largest in the world. It plays an essential part in the UK’s economic strength, managing investments of £1.7 trillion and paying nearly £12bn in taxes to the Government. This industry employs over 300,000 individuals, two-thirds of whom are employed outside of London. UK insurers contribute around £35bn to the UK economy. Let’s look specifically at the significance of the Birmingham and West Midlands insurance industry. 13,000 people work in the insurance and long-term savings industry in the West Midlands, 7,800 of those jobs are in Birmingham alone. In Birmingham you contribute £850m a year to the economy. In the wider West Midlands that increases to £1.2bn. The insurance industry plays a big role in supporting West Midlands manufacturers. Especially through providing commercial covers like trade credit, professional indemnity and engineering insurance.
Let’s get back to talking about uncertainty. Uncertainty is part of everything we do in this industry. Insurance is all about taking the uncertainty away from people and businesses every day. We allow people to save safely towards their retirement, 15 million employees contributed to a workplace pension in 2015, a number which grows every year. We help put lives back together after a flood or car accident, £46m was paid out each day on private motor and property claims. We allow businesses to invest and innovate safe in the knowledge that we have got their back if the worst happens. We operate in every part of the country, touching the lives of almost every family, every business, every day. I know it’s why I’m proud to work in the insurance industry and I’m sure you are too. I’ll now focus on everyone’s favourite subject, Brexit, and what it means for our industry.
There seems to be nothing more uncertain in the current political environment than the negotiations for the UK to leave the European Union. The outcomes of these negotiations matter greatly for our industry and it is why the ABI has been working non-stop for two years on key insurance concerns. I will dedicate the bulk of my remarks today to this challenging issue facing our industry.
What do we know? When the UK Government triggered article 50 of the Treaty on the Function of the European Union it set a deadline of March 2019 for the UK to formally leave the EU. The European Commission has also set a deadline of October 2018to have completed the negotiations. This will allow the EU enough time for the deal to be debated and voted on in the European Parliament and the UK parliament to have a meaningful vote on the deal too.
Since the day the UK government trigger Article 50 the UK and EU have been negotiating the arrangements for our withdrawal from the Union. They are not able to talk about our future arrangement between the UK and EU until a number of key areas are locked down. The most important issues identified by the negotiating teams are; the rights of UK and EU citizens, the special relationship between Ireland and Northern Ireland and the financial settlement (sometimes called the Exit Bill).
Good progress has been made on a number of these issues, but as you will have seen from endless news reports a solution for issues identified around Ireland and Northern Ireland has proved very challenging. In March 2018 there was a positive announcement from the negotiations in the form of a transitional agreement. This said that the UK would continue to enjoy the benefits of being a member of the EU and would follow its rules until December 2020. However, this agreement is still only political in nature and doesn’t yet have legal force and so companies must take a judgement about whether they can depend on it.
So, why does this all matter for us. You will have probably also heard the phrase “Nothing is agreed, until everything is agreed”. The Withdrawal Agreement between the UK and EU is a package. If one part fails, then every part fails. If no deal can be reached once the article 50 deadline expires then the UK leaves the Union and will be treated as a 3rd country with no rights or obligations.
This is the outcome that Governments and businesses have been most keen to avoid because of all the uncertainty it entails. It is why for most of the last 2 years businesses have been focusing on their contingency planning to ensure they are able to cope with a “no deal” or “cliff edge” scenario.
Insurance and Brexit
Brexit raises a number of direct issues for the insurance industry. What will the laws and regulations that govern our industry be the day after Brexit? What will happen to cross-border contracts sold before Brexit, how will those customers get paid. How will insurers continue to sell and service cross-border business after Brexit. How will cars be insured if the drive across a UK/EU27 border – an issue of vital importance not only to our customers on the Ireland and Northern Ireland border, but to freight transporters too. How will the European Health Insurance Card operate after Brexit and what impact will that have on travel insurance policies. And then there is data. Data is so vital to our industry and is involved in all parts of the insurance process. What will Brexit mean for the ability to transfer personal data between the UK and EU?
I believe that we start with a simple proposition – upon exiting the EU, insurers and long-term savings providers want to ensure that they can honour their existing obligations and continue to provide consumers with peace of mind.
The treatment of existing contracts, which have been written in or for a customer in a different EU member state, presents an urgent challenge. For example, a customer who has purchased their pension in the UK may have decided to live in Spain following their retirement. If the UK pension provider is not authorised to carry out insurance business in Spain after Brexit, then it may be illegal to pay the customer their pension or accept any further pension contributions.
The Bank of England estimates that there are 48 million policyholders affected by this problem. From the UK into the EU there are 38 million policyholders and £55 billion of liabilities. From the EU in the UK there are 10 million policyholders and £27 billion of liabilities.
The ABI welcomed the Government’s commitment, announced by the Chancellor on 20
December, to introduce UK legislation for a “temporary permission” regime for existing EEA insurance contracts in the UK. This will protect the contractual rights of the British customers of European firms.
However, the other side of the issue – the ability for UK insurers to continue servicing EU customers – remains unresolved. Insurers are implementing contingency plans to mitigate the extent of the problem, but private action is only a partial solution. We continue urge the government and the EU to continue pursuing a political agreement as part of the Article 50 negotiations to allow existing contracts to run for the duration of their term. This should be supported by ongoing supervisory co-operation between the UK and EU regulators. There is now a regulatory forum chaired by the Bank of England and European Central Bank which will discuss “cliff edge” issues. We hope that this will allow the challenges around existing insurance contracts to be addressed
We also need to preserve the UK as a centre of international insurance.
The UK hosts a significant volume of European and international business through inbound EU branches. This includes European insurers who service their retail and commercial clients through a UK branch. Once the UK leaves the EU, insurers need to have converted these into either a UK subsidiary or an international insurance branch.
On 20 December, the PRA also launched a consultation on its revised approach to the authorisation and supervision of international insurers. The ABI has welcomed the PRA’s pragmatic approach which assumes that current levels of co-operation between supervisors will continue and takes into account where the home EU member state’s regulatory regime is “broadly equivalent”. The PRA has also confirmed it has the power to grant forward looking authorisations to EU branches that need to be converted into new entities. This is welcome certainty for those insurance companies affected.
We need to understand how individuals will access European healthcare after Brexit
The European Health Insurance Card (EHIC) enables UK residents staying temporarily or visiting another EU country to access state-provided healthcare. 27 million EHIC cards are in circulation in the UK and 1% of those cards are claimed against. The UK spends significantly more, approximately £155 million annually, on reciprocal healthcare than it receives from EU citizens, reflecting the large number of Brits travelling and living in the EU.
If the Government do not find a suitable solution for continuing the EHIC, then consumers, particularly those with pre-existing medical conditions, may not be able to access affordable healthcare or emergency healthcare when travelling abroad.
This continues to be a big issue for travel insurers and we continue to work closely with the Government and the Department of Health and Social Care to help develop solutions.
What about the ability to drive across borders?
Currently travel within the EEA does not involve border checks, this is a result of the Motor Insurance Directive. When the UK leaves the EU, the UK will no longer be part the Motor Insurance Directive, which abolishes the need for consumers and hauliers to carry a physical “Green Card” to travel inside the EU. Furthermore, the current arrangements also guarantee that consumers have third party motor insurance when visiting other countries and provide victims of motor accidents in the EU with a route to compensation in their own country and language when a visiting motorist causes any damage.
If this issue is not addressed, smooth cross-border travel will not be possible and victims of a motoring accident abroad will have to pursue claims against a foreign body directly, potentially in a language which they are unfamiliar with and without the aid of an information centre to identify insurance details. Re-introduction of physical Green Cards would also create significant administrative and logistical hurdles for commercial transport where motor insurance is on a fleet basis.
We are hopeful of a positive outcome in this area and the Department of Transport has committed to keep the UK part of the paperless Green Card regime post-Brexit.
Transferring personal data between the UK and EU
We know that the UK has fully implemented the General Data Protection Regulation, GDPR. Not least, because like you not a day goes by without an email from some organisation informing me that they comply with the new law.
Without any future agreement, upon Brexit the ability for companies to transfer personal data between the UK and the EU will cease. Just think about the impact for your company. If you were not able to use a customer’s personal data to price a product, underwrite a policy or pay a claim.
It is important that the UK and EU negotiate a Data Adequacy agreement that allows for data transfers to operate seamlessly and effectively after Brexit.
What will our laws be after Brexit?
The Government has now passed the EU Withdrawal Act. This is the legislation that
effectively transfers all existing EU law onto the UK statute books. This is important for our industry as many of the regulation that govern the conduct and prudential rules for insurers were made in Brussels and Frankfurt.
The next stage is for secondary legislation to be passed which will allow ministers and regulators to correct parts of the transferred law that are no longer compatible once we leave the EU and give new powers to regulators. The important point here is the need for clear and effective parliamentary scrutiny of the powers being transferred. These laws and regulations were scrutinised by Members of the European Parliament the first time round and should receive similar levels of scrutiny in the UK. Taking back control of laws and regulation should not result in an unaccountable transfer of power to the regulators.
Where does that leave us?
As I have outlined today the insurance industry faces a great level of uncertainty from Brexit. In fact, I think Danny Dyer Senior accurately described it last week as “this mad Brexit riddle”. The ABI has been helping firms to try and navigate this uncertainty and solve this riddle in the best way we can, through open and honest dialogue with politicians and regulators in the UK and the EU. Because as I have highlighted the stakes are very high if we don’t find acceptable solutions.
We have made good progress over the last two years but there is still a long way to go in the Brexit process. We need to continue to work hard so that:
• We keep our promise to our existing customers
• Travellers and motorists have effective cross-border insurance options
• There is a free flow of data between the UK and the EU
• There is adequate scrutiny of our laws and regulations
• The UK as an international centre of insurance is protected
This all needs to happen for there to be a sensible Brexit outcome for our industry and customers. So that some of the uncertainty becomes a little easier for the industry to
manage. And let’s be honest, so that we are able to get back to the World Cup, the weather and Love Island!