UK’s terms of departure to affect London’s £60bn insurance market, says Norton Rose Fulbright.
Prinesha Naidoo
Competition among insurance providers in emerging markets is set to intensify, as the UK’s plans to leave the European Union (EU) hasten London-based insurers’ moves out of Europe.
According to Liam O’Connell, a London-based partner at Norton Rose Fulbright, Brexit poses a significant threat to the city’s insurers.
Speaking at a Johannesburg insurance seminar, he said the London insurance market – the largest global centre for commercial and specialty risk – currently benefits from a single European market by using passports to take advantage of free movement principles.
“The single biggest benefit of membership of the EU, from an insurance perspective, has been the ability to passport into other EU member states. Now, that means if you’re authorised in one EU member state, you’re automatically able to provide services and establish a branch in another EU member state, without a separate licence,” he explained.
Citing data from 2013, he said the EU business made up £6 billion of the London market’s £60 billion in total gross written premiums. However Brexit puts the ability to passport, and the access to over 500 million people in EU enjoyed by London’s 350 insurers, at risk.
“If we do lose the ability to passport, then obviously every insurance entity operating out of London that wishes to continue operating throughout the EU, is going to need to revise its business structure and establish subsidiaries or branches in those European member states that they want to trade in,” he said.
Apart from the terms of products and policies, data protection and staffing issues, O’Connell said a pattern of EU companies opting to insure with service providers in their home markets – rather than in London – would weigh on the city’s competitive insurance market.
He provided anecdotal evidence of a large German manufacturing company choosing to withdraw certain policies from the London market, after 25 years, in favour of insuring with domestic German insurers, following the Brexit referendum.
“It is likely that the EU insurers will become a more attractive home for foreign investment than London and we are likely to see a weakening of our competitive position,” he added.
While stagnant growth in the European market saw London-based insurers target growth in emerging markets prior to the Brexit referendum, he said the outcome of the vote would likely accelerate their foray into emerging markets.
Referring to the business plan of specialist insurance and reinsurance market Lloyd’s, he said opportunities for London-based insurers exist in Africa, South America and the Far East.
During the weekend, UK Prime Minister Theresa May announced that her government will trigger Article 50 of the Lisbon Treaty, at which point the negotiation process for a country’s exit from the EU will start, by the end of March 2017. The UK will then have up to two years to negotiate the terms of its departure.
“It is too early to tell whether it is a crisis or an opportunity and everything will hinge to the way [in] which the government is creative in their solutions and ambitious in its negotiating platform,” he said prior to May’s announcement. He added that removing some of the EU “over regulation” could result in a more competitive UK insurance market.
For South Africa, he said Brexit-driven weakness in the pound sterling will have a negative impact on South African-headquartered companies, which derive earnings from the UK. He said that much depends on the nature of the Brexit and the renegotiating of existing trade agreements between South Africa and the UK.
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