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Potential Impact Of Brexit On The UK Insurance Industry

With the EU referendum drawing closer, insurers are sitting up and taking notice of the possible implications that an exit from the EU could have on the UK insurance market.

brexit europe imageLloyds insurance group have 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 sit up and take 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 legislations, 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 brought into effect in January of 2016. The aim of the Solvency II Directive is to unify the insurance market and provide consumer protection 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 around £300 million.

The legislation has been a cause for concern among many large insurers with some citing the tough regulations could force them into relocation. Prudential, one of the giants of the insurance market have considered a relocation of their HQ from London to Hong Kong in a bid to escape the tough requirements of EU regulatory compliance.

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 Member States without additional requirements or costs involved for additional oversight of regulations.

International Trading Links

While the EU insurance market is a single platform, there are large nations such as the United States and China who have trading links with the UK because it gives direct access into the single market. International trading could be hampered in the event 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 of the Lloyd’s group, all other insurance firms, including reinsurers are represented by the IAU.

Both groups agree that the exit from the EU would not be good for 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 in order to retain access to the single market as it as at the moment.

There has been significant investment from all insurers to be complaint with the Solvency II Directive, in addition to the UK’s own regulations through the Prudential Regulation Authority, which goes beyond the EU regulations ensuring consumer protection.

As significant investment has already been spent by insurers to comply with EU Directives, naturally none want to see that go to waste, which it would in the event of a breakup from the European Union.

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