Potential Impact Of Brexit On The UK Insurance Industry

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 insurance policy underwriters, the financial sector takes heed of what’s being reported when its Chief Risk Officer Sean McGovern issues a statement.

Possible Ramifications of a UK Exit from the 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 shorter. That could mean lower premiums for women and increased insurance quotes for men.

Under current legislation, that cannot happen, so, all things being equal, every quote 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.

Currently, all insurance providers are required to be Solvency II Compliant. The insurance market’s compliance costs are 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.

Prudential, one of the giants of the insurance market, has considered a relocation of their HQ from London to Hong Kong to escape the tough requirements of EU regulatory compliance.

More variety in a single insurance market

As the insurance market within the EU comprises 28 countries combined into a single market, home to over 500 million people, there’s plenty of variety in insurance products.

Because insurance products differ to cater to individual policyholder needs, 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 to comply with additional regulations.

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 trade could be hampered if the UK leaves 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. 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 with 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 currently exists.

All insurers have invested significantly in complying with the Solvency II Directive and the UK’s regulations, administered by the Prudential Regulation Authority, which go beyond the EU regulations to ensure consumer protection.

As insurers have already invested significantly to comply with EU Directives, none want to see that go to waste, which it would in the case of a breakup from the European Union.

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