Potential Impact Of Brexit On The UK Insurance Industry 2023
With the EU referendum drawing closer, insurers are sitting up and following the news about the possible implications that an exit from the EU could have on the UK insurance market.
Lloyds insurance group has gone on record to state that an exit would damage the insurance market as a whole.
As one of the largest underwriters of insurance policies… when their Chief Risk Officer Sean McGovern issues a statement, the financial sector sits up and takes heed of what’s being reported.
Possible Ramifications of a UK exit from EU
The EU Gender Directive
Right now, sexual discrimination is something everyone is aware of, but not everyone is aware that under the EU Gender Directive, UK insurers cannot discriminate between genders.
In practice, despite the life expectancy gap narrowing, insurers can’t increase a premium because you’re male or female, and statistics indicate you’re likely to live longer or less. That could mean lower premiums for women and increased insurance quotes for men.
Under current legislation, that cannot happen, so every quote, all things being equal, would be the same for either gender.
Solvency II Directive
This Directive has been in the works for years and was only enacted in January 2016. The Solvency II Directive aims to unify the insurance market and protect consumers against insolvency.
As things stand currently, all insurance providers are required to be Solvency II Compliant. The cost of compliance to the insurance market is estimated at around £300 million.
The legislation has been a cause for concern among many large insurers, with some citing the tough regulations that could force them into relocation.
More variety in a single insurance market
As the insurance market within the EU consists of 28 countries combined into one single market, consisting of over 500 million people, there’s plenty of variety in insurance products.
As every insurance product is different to cater to the individual needs of policyholders, the single market offers a greater variety of products.
Moreover, it allows UK insurance firms to sell policies across the Member States without additional requirements or costs for additional regulations oversight.
International Trading Links
While the EU insurance market is a single platform, large nations such as the United States and China have trading links with the UK because it gives direct access to the single market. International trading could be hampered if the UK breaks away from the European Union.
Lloyd’s of London and the International Underwriting Association (IAU)
Lloyd’s of London is a market more than it is a company. Collectively as a group consisting of 94 syndicates, and hundreds of brokers, they have underwritten over £25 Billion of gross premiums (2014). Outside Lloyd’s group, the IAU represents all other insurance firms, including reinsurers.
Both groups agree that exit from the EU would not benefit the insurance market.
Due to international trading links, including Japan, the US, and China, a breakup could see large firms relocate their Head Offices from the UK to other Member states to retain access to the single market as it is now.
There has been significant investment from all insurers to comply with the Solvency II Directive, in addition to the UK’s regulations through the Prudential Regulation Authority, which goes beyond the EU regulations ensuring consumer protection.
As insurers have already spent significant investments to comply with EU Directives, naturally, none want to see that go to waste, which it would in case of a breakup from the European Union.