7 December 2016
CHECK AGAINST DELIVERY
It is a great pleasure to be back in Dublin and an honour to be asked to address your conference here today on behalf of the UK's insurance industry. In marked contrast to the events of 100 years ago in this city, today our two countries are the closest of friends and economic partners, a friendship reflected in our interconnected economies, our many shared cultural and social experiences and of course the deep family connections which so many of us have with Ireland, particularly if like me you are a second generation Welshman with a set of great grandparents that included an 'O Brien', a 'Dunne' and a 'Murphy' among them. That means by the way I will include your fantastic victory over the All Blacks as a partial triumph for the Welsh too; many congratulations.
And I am delighted to say I have done my own bit this year to deepen the connections. When I was here in May for the General Assembly that Kevin and his team hosted, I had the usual mad dash around the airport to find a suitable gift for my kids before I flew home. The cuddly sheep I purchased for my six year old daughter - promptly, and imaginatively, named 'Irish Mary' - was an immediate hit and has spent most nighttimes with her ever since. Last week, stardom beckoned in Colchester (where I live) when Irish Mary had a leading role in my daughter's Nativity play, being brandished about by none other than Joseph himself, complete with Emerald Green 'Ireland' ribbon round his neck. I'll collect my gold medal from the Tourist Board on the way out...
The turnout at the Nativity Play was very high this year and part of me did wonder whether in this rollercoaster of a year, we are all just grasping at any semblance of normality we can find. In my remarks today, I want to give some perspectives on the most important of those recent political shocks for our two countries - Brexit - and explore what it means and how it could unfold. I hope to give you a flavour of what we feel it could mean for the UK insurance industry and give a sense of what matters most amid the significant noise which attaches itself to every twist and turn. And I look forward to hearing your perspectives in the discussion immediately after my remarks.
If we start with the drivers of Brexit, I think it is easy to compile a list but still hard to weight the relative importance of each issue. Certainly the short campaign seemed to pivot in late May from the almost entire focus on economic issues up to that point onto immigration and control of borders with the publication of the ONS data on overall immigration levels. But I think we are all right to take seriously a range of factors which helped the 'Leave' campaign build its support so dramatically; the EU seemed a distant institution with the benefits intangible but the downside all too apparent to people or businesses who felt disadvantaged by single market membership. The notion that EU membership cost '#350 million' a week that could be spent on public services gained traction which those of us in the media/political/business establishment found hard to credit at first.
As in so many referendums over the years, including in Ireland, the simple opportunity to register a protest vote against the perceived distance or arrogance of a ruling elite was very powerful, especially in a first past the post UK system where many voters living in non-marginal seats feel their 'normal' General Election vote doesn't count. A decade of wage stagnation and decline for many sections of society for the first time since the 1860s also underpinned resentment.
All these factors - and some significant weakness in David Cameron's Remain strategy - helped catalyse the 'Leave' vote which was arguably got over the line by people in relatively unprosperous parts of the UK who did not normally vote and were therefore largely invisible to pollsters. Here, we see the obvious similarities with Donald Trump's victory in the Rustbelt states that delivered him the electoral college victory.
Just as in the United States what we also saw - regrettably - in our EU referendum was the lack of any real focus on the possible impact of the vote on our closest neighbours and allies. For me one of the most profound moments in the campaign was seeing John Major and Tony Blair - not the closest of friends - campaign together in Northern Ireland to flag the risks to the peace process and the economies of both North and South of a 'Leave' vote. We all have a duty to try and manage that risk for the customers we serve.
Where are we now?
So six months on, where has that left the UK political scene? The most obvious change is a complete change of UK government, a change both of personnel and ways of working. If I tell you that every single minister the ABI dealt with across 10 government departments changed, it gives you a feel for how complete the turnaround was.
Theresa May and her team have made no bones about describing this as a 'new Government' which honours the manifesto from last year's election but has a different set of discretionary priorities and a self-consciously more process-focused way of working. As you may have seen with Chancellor Philip Hammond's recent Autumn Statement, the explicit intention of the government is to work in a more orderly, less news-drive way with fewer surprises for business and a more structured programme of interaction with stakeholders.
This attempt at order is much needed because the parliamentary environment for the UK's Conservative Government is a very challenging. With a working majority of just 13 and no majority in the House of Lords, it faces a challenge to get its business through and an ever-widening chasm between many Conservative MPs on how to approach Brexit which inevitably shapes the rest of domestic politics too. These tensions have been visible enough at Cabinet level as a series of well briefed stories throughout the Autumn have indicated. But on the Conservative back benches there is little pretence at any common ground between the Remain MPs - many of them, former ministers - who view it as their job to ensure an ongoing relationship between the EU27 and the UK and those who were fervent Leave MPs who view the EU as a failed institution which the UK should separate itself from as quickly and thoroughly as possible. This is worth stating because it impacts both the choices the PM will have to make as negotiations get underway and - crucially - how these are presented.
The UK Parliament at Westminster is increasingly important in this context which is why the current case before the UK Supreme Court has acquired so much significance. With 2/3rds of MPs backing 'Remain' and significant differences of opinion about what Brexit means in practice, there is no shortage of motive and opportunity for MPs to seek to scrutinise the approach of the Executive through select committees, opposition day debates (as is happening today), departmental questions and PMQs.
It is also worth noting the actions of the Scottish, Welsh and Northern Irish governments in joining themselves to the case. Irrespective or not whether Parliament ends up passing a bill to enact the triggering of Article 50, the introduction of the so-called 'Great Repeal Bill' in Q2 2017 will see much of the detailed work on Brexit move to the Houses of Parliament as the highly complex challenge of legally separating out the UK from EU legislation begins.
ABI analysis suggests there are at least 80 different areas of EU law affecting the insurance & long-term savings industry alone which need to be reviewed in this context so you can begin to understand the scale of the challenge across the whole economy.
In terms of the negotiations themselves, it seems clear that UK ministers are well aware of just how uncertain a continental European political landscape they will be facing into from March onwards and there is a real desire to establish early agreements on reciprocity of rights for EU workers in the UK and vice versa. There is also a very understandable desire from No 10 not to offer a running commentary once negotiations start, even though such a commentary is highly likely to be briefed from the other side of the table. More importantly the Prime Minister's style seems to be to give little away of her direction of thinking even to her ministers and team so I would advise treating any media reports of the British bottom line as speculative.
So where does this leave the UK insurance industry and how we have engaged with the challenge so far? Our analysis has started from the vantage point that as the largest market in the EU and the fourth largest in the world, we are significantly affected by EU Exit, whether or not individual firms have much cross-border EU business. This is obviously amplified by London's role as the insurance capital of the world.
We have set out our asks of Government across five areas which command the support of all parts of the industry. This is important because if we do not aim to speak with one voice when so many other sectors are shouting loudly in unison, we will simply not get heard. Our five asks are:
A regulatory regime that is appropriate for the UK that ensures we have a say over how we are regulated.
A focus on seeking to preserve passporting as part of discussions about access to the single market. Passporting is a vital function for those insurers and long-term savings providers that use it.
Maintaining completely the data framework agreed at EU level that comes into force in May 2018 during the Brexit process.
Early clarification of the status of EU workers employed in the UK.
A focus on trade dialogue that breaks down regulatory and political barriers which impede insurance & long term savings expansion in key overseas target markets alongside the more fashionable bumper trade deals that typically focus on goods.
Underpinning these five asks is a sustained focus on the need for an implementation period which stretches from the end of the UK's membership in 2019 to a period when the new relationship can be broadly established. Although implementation periods are common in EU processes, UK ministers have expressed nervousness that such a process could be abused by those who want to delay Brexit in order to scupper it or be too big an additional 'ask' at the beginning of a tough negotiation. We see it differently. Not only will an implementation period be a sensible way of delivering such a momentous change for both sides, if agreed early it provides the option for the firms most affected by Brexit not to take swift decisions in 2017 on scaling back UK operations.
We call on the Government to make a clear commitment that it will seek an early agreement with our European partners on a high level transitional implementation period which will help avoid economic shocks to both the EU and UK. This is in both sides’ interest, would not be a sign of negotiating weakness and is essential if we are to maximise the smooth running of the financial system after 2019. Without such a commitment there is little incentive for insurers considering relocation to take a longer term view on whether to press ahead with a decision.
But the unwillingness to agree immediately on the need for transitionals underlines a wider challenge for the UK financial services sector in securing widespread support for our 'asks'. Less than a decade after the worst financial crisis in 80 years and with a backdrop of PPI, LIBOR, interest rate swaps and some remuneration excesses is hardly the ideal time for our sector to be seeking as many ministerial and parliamentary supporters as possible, despite the economic and social importance of our sector. So all of us in financial services know that Brexit means we have to work even harder on reputation, delivering promises and maximising our social worth if we are to make it easier for policy makers to publicly agree with us. As the UK insurance sector employs 2/3rds of its 300,000 workforce outside London and pays out millions of pounds in claims and pensions every day, I know we can make a strong case for our value to the millions of households and businesses we support every day of the week. But it is only by upping our game in promoting the wider value of insurance and financial services that we will make it respectable for more politicians to stand up for the value of our sector.
And as I draw my remarks to a close, it is important to remember that value to Ireland and the UK. Ireland is the UK's sixth biggest trade partner in goods and services and our second largest export market after the US, a fact mirrored in the specific insurance and pensions export data which show we exported #740m worth in 2015. This economic interconnectedness is also evidenced by travel data; Ireland is the UK's third most popular business trip destination after France & Germany and above the USA.
But we know that your future is in the EU while ours' is not and that Brexit will only help you build further your value as an international insurance hub within the EU.
It would be easy to take that point to end my speech with a staunch defence of the ongoing value of London and the UK to businesses that might be tempted to Dublin but I think that would be unnecessary. I know that firms are working hard assessing options as we speak and will not pay too much attention to the rhetoric on either side in reaching a decision. Dublin and London both offer many similar qualities to insurers including a stable legal and political system, relatively low corporation rates, an educated workforce and a respected regulator.
What matters is that we continue to not let Brexit fundamentally damage the friendship and economic partnership of our two countries, a relationship that is unrecognisable from the centenary period being commemorated in O'Connell St this year. An important part of that relationship between us is the active role of UK-based providers of insurance and long-term savings in your economy and it will be important Irish perspectives are heard and respected in the Brexit talks. I remain hopeful that with common sense, a focus on the future and shared determination, we can help achieve an orderly transition to the new EU27 world underpinned by our lasting friendship and interconnected economic interests.