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EU and Trade: The facts

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 Hugh Savill, Director of Regulation, ABI

Trade negotiations are like a barn dance. They can look quite straightforward when you run through the moves with your partner in the living room. Only a novice would say it was straightforward once you are in the barn, navigating round the other dancers and dodging straw bales.

I had my share of tricky sets during my time at the Department of Trade and Industry, working on negotiations with a diverse range of nations – some more willing partners than others.

Trade has featured heavily in the Referendum campaign, and it’s a mistake to think trade concerns only apply to goods which can be packed into containers. Insurance doesn’t have to be transported by ship - there are no customs to be cleared, no tariffs to pay.

But there definitely are barriers to trade in insurance which our EU membership helps us overcome. Most of these are regulatory barriers. Insurers need to be authorised by the regulator or the Government to do business, and regulators set a large number of conditions to that authorisation.

If the UK leaves the EU, we are talking about unpicking trade deals – the reverse of the usual process.

My previous blog explained why the EU passporting system makes trade in insurance within the EU so much simpler and easier. If the UK leaves the EU, we are talking about unpicking trade deals – the reverse of the usual process.

A number of models for the UK’s possible future EU relationship exist:

  • The Norwegian model (aka EEA membership) would replicate membership of the Single Market, but with no say on the development of the rules going forward. Even the Norwegians don’t like their own model. (see the blog Ellen Bramness Arvidsson of Finance Norway has written for us here)
  • World Trade Organisation (WTO) membership is not a promising place to start for financial services – one of the UK’s major exports. WTO rules include a very broad prudential carve-out, meaning that trade deals have limited impact on trade in insurance. Prudential regulators are not constrained by trade rules, and can impose as many barriers as they wish. And they do. Encouraging trade in insurance does not feature among regulators’ objectives.
  • Others hold out hope for a special deal for the UK. This is the most promising option – though it’s possible that we may have indisposed our negotiating partners. I’m always amazed that those so concerned about the UK’s negotiating influence with EU partners in Brussels now, as a member of the EU, suddenly believe the UK’s influence will be improved when we decide to leave. Any deal is likely to involve the concept of equivalence. This concept causes us enough grief when we are members of the EU, let alone if we are not. What is the incentive for a national regulatory authority to agree that another country’s regulator can be trusted with the fate of its own consumers? Regulators know that, if anything goes wrong, local politicians will crucify them. Any equivalence deal is entirely political.

And this is just trade with the EU. We would need to strike new deals in financial services with all the major markets in the world. Not impossible, but a tall order. It will take much longer than expected.

The notion that replacement UK deals for the current EU deals can be negotiated quickly and easily is codswallop.

Trade deals create winners and losers, but public support is difficult to assemble. The winners, who are usually consumers, have no idea why prices have gone down. The losers, usually incumbent businesses and those working for them, know very well what is happening.

Access to London’s financial services markets is indeed a prize. But foreign providers of financial services will explain very clearly to their Governments the benefits of clipping the City’s wings. The notion that replacement UK deals for the current EU deals can be negotiated quickly and easily is codswallop.

Without EU membership we will find the hours we’ve spent rehearsing our barn dance moves come to nothing once we are in the hall. Especially if the other dancers have decided to hold a jive instead while we weren’t even in the room.

Hugh Savill is Director of Regulation at the Association of British Insurers (ABI) and was a  senior official at the Department of Trade and Industry for 20 years.

Last updated 29/06/2016