Membership of the EU guarantees British insurers the right to do business in 27 other countries on an equal footing. The UK gains from this arrangement, selling more in insurance and long-terms savings products to the rest of the EU than they sell to us. Ahead of the EU Referendum on June 23rd, the ABI is producing a series of blogs exploring the role of the EU in our industry in more detail.
Hugh Savill, Director of Regulation, ABI"Blimey! I’m a foreigner!" says the policeman in the old Ealing comedy Passport to Pimlico. After Brexit, expect a chorus of sentiments like this, robustly expressed in all official EU languages (and probably some unofficial ones), as financial services providers realise that they can no longer rely on their passports.
For insurers, passporting is the way that insurers access the Single Market, allowing us to sell insurance across Europe on the same basis as local firms.
There are two kinds of passport for insurers:
- Freedom of services. An insurer in the UK can provide insurance from the UK, to a client anywhere in the EU, provided the insurer follows the conduct rules in that country;
- Freedom of establishment. A British insurer can set up a subsidiary or a branch anywhere in the EU, and provide insurance to clients from a local base. Again, the local country’s conduct rules must be obeyed.
Of course Solvency II capital rules apply in both cases.
Insurance remains a largely local business for retail customers, who prefer the security of insurance provided in their own language, within their own legal system.
So retail insurers make greater use of freedom of establishment. Cross-border business is more common for large commercial insurers, with the classic example being the members of Lloyds of London.
The passport is really important to British insurers. We sell more insurance to other members of the EU than they do to us. The opportunity is good for British insurers, and good for their customers also.
The passport works both ways. Insurers from other EU countries are a respected and long-standing part of the British insurance community. This is good for them, and for their British customers.
If the decision of the 23 June Referendum is to leave the EU, nobody knows what will happen to these passporting rights. Anybody who pretends that they know is misinformed, as it depends what arrangements we reach with our former EU partners.
Our judgement is that the British Government will have difficulty trying to replicate the passporting regime. All that we can say for sure is that insurers will face a period of uncertainty as to the future regulatory regime. Regulatory uncertainty is bad news.
Insurers are offered nothing in return for this uncertainty. The implicit bargain is that, in the event of a vote to leave, regulatory uncertainty will be offset by less bureaucracy. There is no guarantee that this can be delivered.
Hugh Savill is Director of Regulation at the Association of British Insurers (ABI)