The UK officially left the European Union at 11pm BST on Friday 31 January 2020, 10 months later than originally planned due to two negotiation period extensions. Both are now in a transition period due to end on 31 December 2020. During this period, the conditions of the new relationship will be redefined and agreed.
Impact on UK insurers
For insurers and other corporations, this means that the UK is automatically no longer a member of EU political institutions. It does, however, continue to be a member of EU economic institutions and a Member State of the European Single Market until the end of 2020 and the end of the transition period, if no extension is requested by the UK. During that time, the UK and the EU will discuss and try to agree on their future partnership and, in particular, the accessibility to each party’s economic market. For EU and UK insurers, this means there is still uncertainty on how they will be able to write business following the end of the transition period. However, some preventive measures have been taken.
What we know
For UK insurers, planning for Brexit began when the result of the 2016 referendum was known. As Brexit negotiations continued and time passed without a deal, the situation for UK insurers was unclear. Considering the likelihood of a “no deal” or “hard” Brexit, many UK insurers took precautions opening subsidiaries in an EU location to ensure continuation of EU business. Some of these subsidiaries have been operating for some time now. They have established quickly to be able to write EU insurance business in the EU, while the UK entity continues to handle UK and international business. For EU insurers writing insurance business in the UK, HMRC allows overseas insurers to register and deal directly with them or they can appoint a UK agent to act on their behalf.
What remains unclear
Previously an agent could be based in the UK or anywhere in the EU. It remains to be seen if EU based agents will still be able to act for EU insurers in the UK once the transition period ends. Similarly, depending on how discussions between the UK and EU progress, may influence whether the EU will provide tougher supervision on newly created UK insurers’ subsidiaries on the European continent.
Early indications of the UK’s position regarding the upcoming negotiation might become clearer in the next Budget on 11 March 2020. In particular, a potential change in the UK insurance premium tax (IPT) rate will be scrutinised by domestic and foreign insurers. Other elements could also be provided by the outcome of HMRC’s recent IPT call for evidence.
Whilst it’s unlikely we’ll see any immediate change to the Freedom of Service regime that the UK and EU members currently enjoy, the 11-month transition period plus further trade negotiations should provide greater clarity to both UK and EU insurers once the transition period ends on 31 December 2020, provided no extension of this period is agreed between both parties by 1 July 2020.