Brexit: The Road Ahead

The impact of the UK publics' decision to leave the EU will take time to determine as the exit is negotiated over the next two years. As you navigate this period of uncertainty – and opportunity – you can expect us to be a source of insight, perspective and actionable solutions throughout the exit process. We have brought together the full capabilities of Aon to address your unique business needs during this time of change.

With Article 50 triggered,
read our experts’ thoughts
on what to expect

The UK and Europe faces considerable uncertainty in the coming years and business must prepare for change as the UK seeks to forge anew its global economic and political position post-Brexit. To help our clients better understand what this may mean for their business, Aon experts have analysed the recent Government white paper on Brexit and sought to provide answers to some of the key issues raised.

Evaluate impact of risk
exposures with
Brexit Navigator

Aon has developed Brexit Navigator, a three step solution that helps evaluate the impact of Brexit risk exposures, and can support clients as they look to redesign risk management and risk financing structures. It is suitable for organizations globally with operations and business interests in the UK.

Guidance and support
from our experts.

Following the UK's historic vote to leave the EU, Britain has a new Prime Minister, and hopes are rising that the uncertainties that immediately followed the vote may subside as global markets calm. Geopolitical events of this nature are strong reminders that in today's interconnected world, organizations should take proactive measures to prepare for the unknown. Leading companies have already begun to consider the potential outcomes of Brexit and are beginning to plan accordingly.

From supply chain disruptions to fluctuation in exchange rates and changes in employment law - Brexit is likely to have a long-term impact on business and it is critical for senior business leaders to begin to prepare for Brexit's likely implications.

Calculating the impact of the UK's EU exit is complex. Here's how some of Aon's top experts assess the current situation.


    "The shape of Brexit is important. Capital markets don't quite know what access to the single market will look like."

    Tapan DattaGlobal Head of Asset Allocation,
    Aon Hewitt

    "Those close to retirement may need to reassess their retirement expectations. To put it into context, someone retiring the week following the EU Referendum, might expect their retirement income for the rest of their life to be 10% less than they had anticipated."

    Andy CoxCEO, EMEA Retirement & Investment

    "There are market and business implications of the vote but the underlying catalyst for both are largely political"

    Bridget GainerVP Global Public Affairs

    "It is critical for clients to take this moment to reassess their risk profile overall, prioritizing where they may see the greatest impact and ensuring they are structured for resilience and future growth."

    Andrew TunnicliffeCEO, Aon Risk Solutions UK

    "The best leaders for this period of uncertainty will be those who effectively manage ambiguity and engage their talent to continue to give their best under these challenging conditions."

    Alexander VerweijManaging Director, Head of Talent, Rewards & Performance

    "The anticipated economic slowdown and labor force reduction could result in decreased demand for certain health and benefits products."

    Richard KirbyChief Operating Officer,
    EMEA Health & Benefits

Why It's Time to Reassess
Your Risk Profile

Risk and Brexit: Following the UK's decision to leave the European Union (EU) on June 23, organizations are working to understand if/how their relationships with the UK and European re/insurance industry may need to evolve.

In the immediate term, the industry is looking to respond to the ultimate ramifications of the UK's exit from the single market, but nothing will happen overnight. Article 50 – the mechanism by which the UK will leave the EU – has not yet been triggered, and the UK's departure from the EU could take up to the full two years provided for once the process begins.

In the meantime, it is important for organizations to start the process of considering, and to the extent possible, start a process of adaptive planning for various Brexit scenarios.

Clients should consider their trading and operating model first and foremost, with insurance decisions flowing from those decisions and objectives. We have however identified three key risk issues to consider:

Risk profile: As with any commercial or political development, it is critical for corporate buyers to take this moment to work with their risk advisor in order to reassess their risk profile. They need to prioritize where they see the greatest impact to their business following Brexit, and ensure they are structured for resilience and future growth, with clear stakeholder responsibilities. For all intents and purposes, we do not expect many, if any, material impacts on the risk profiles of our clients in the near term. As the implications of a UK exit from the EU become more understood from a risk and exposure perspective, each organization will need to evaluate how the new political and regulatory environment impacts their organization (e.g., supply chain risk, directors' and officers' increased exposure, trade credit and political risk, etc.).

At that point, organizations will need to determine if or how their risk mitigation strategies may be structured or changed to transfer any layer of risk they would like to move from their balance sheet. It is increasingly important for organizations to understand carrier aggregations and determine in a thoughtful fashion how to allocate their exposures across the globe.

We have been monitoring the financial implications of the insurance carrier populations around such areas as exposure to significant fluctuations in the equity markets, and conclude there is no significant financial risk to the industry at large at this time.

Aon's unique position in the marketplace provides our clients with global market access as well as the results of an unmatched investment in data and analytics to help drive market innovation and address our client's evolving and emerging risk needs.

Insurance program response: Some organizations have expressed concern about the impact of a possible depreciation of the British pound on policy limits. Policies are traded in local currencies and the potential impact of this development is limited to clients with policies issued in the UK. That said, this is a complex scenario and a review of the currency of the exposure base relative to the currency of the policies and related provisions or clauses outlining burden responsibility should be explored. Clients are encouraged to contact your Aon broker with any specific questions about your insurance program and risk profile.

We anticipate the buying process may become increasingly complex, and Aon and our market partners are well-prepared to manage through such developments in order to achieve the desired coverage and necessary measure of compliance for global insurance programs.

Battling Low Investment Returns & Market Volatility

Impact on Pensions: Brexit's impact was immediately felt in both capital and currency markets, causing significant volatility around the world. Pension funds were hit by increased liabilities and decreased assets. Globally, the impact is likely to have been more than $200 Billion. We expect to see significantly higher volatility and lower returns in coming years. Beyond funding, the new regulatory environment in the UK and potential of a broader EU breakup are creating additional uncertainty for pension plans around Europe.

These trends may have significant impact on the three core retirement stakeholder groups – Trustees, Plan Sponsors and Individuals.

Trustees: In the UK, pension governance is managed through independent trustee groups who need to quickly understand the risk exposure of both the scheme and the sponsor. We have seen many Trustees updating latest funding positions and risk models. Given recent high profile insolvencies, such as British Home Stores where Trustees were criticised for not taking action when they could, we might see Trustees take a more aggressive stance on asking for contributions.

There are some immediate issues that trustees need to consider, including the terms that they offer to members who cash in their pensions. They should also consider liability risk management or even risk transfer exercises.

Plan Sponsors: Whether in the UK or elsewhere, companies need to understand the financial position of pension plans and risk exposure. The risk of needing to pay more in contributions should be factored in financial planning in light of Brexit. Beyond cash flow impact for companies in the financial sector, regulatory capital positions will be important and could directly affect a company’s ability to operate.

Given the deficit and risk position, it may be appropriate to mitigate risks in order to protect against potential downsides. Companies contemplating an acquisition should look very carefully at pension arrangements. Firms should also be aware of the potential for regulatory disruption which could impact on funding and benefit structures.

Individuals: Individuals' concerns will likely be focused on the effects a recession may have on their employment and personal finances.

For individuals far from retirement, we need to help them stay calm. Those closer to retirement may need to reassess their retirement expectations. To put it into context, someone retiring the week following the EU Referendum, might expect their retirement income for the rest of their life to be 10% less than they had anticipated. Overall, individuals should assess their personal situation, and examine their contribution levels, investment strategies and retirement dates.

Anticipating Rising Health Care Costs

The implications of Brexit on the health care system: The United Kingdom’s decision to leave the European Union has created a tremendous level of uncertainty throughout Europe and around the world. And while the exact implications are unknown at this point, there is plenty of speculation about the impact of this decision on everything from capital markets to the political landscape and immigration.

Similarly, potential scenarios that may play out in the UK health care system are also being debated, especially given that many who championed the cause for "Brexit" indicated that funds could be redirected from the EU and invested in the National Health Service (NHS). However, that claim was quickly dismissed following the referendum, leaving many to question the real implications of Brexit on health care.

Impact on employers and consumers: Before the referendum, the NHS was facing a shortage of around 116,000 workers by 2020. The UK has traditionally tried to fill the gap by recruiting workers from other EU countries, a strategy that becomes significantly more challenging should Brexit occur. The NHS had also planned to gain £22 billion in efficiency savings over the next few years by focusing on primary and long-term care based care models. However, the lack of trained manpower will make this transition very difficult.

As a result of the funding gap and staff shortage, the Economic Intelligence Unit predicts that by 2020, the NHS' spend per capita will be reduced by £135 a person, impacting access to high quality care.

The impact of Brexit on the NHS will also have implications for employers. Frustrated with the public health system, many individuals will look to their employer for support, driving demand for private health insurance, which in turn impacts employer budgets.

Furthermore, the anticipated slowdown in the UK economy and labor force could result in decreased demand for certain health and benefits products. This creates a significant pricing challenge as current carrier rates are based on membership numbers and breaching those numbers could trigger revised rates. This dynamic, combined with a spike in claims that is typically correlated with economic recessions, would further drive up health care costs.

Impact on insurance carriers: There is much speculation regarding UK interest rates set by the Bank of England and whether or not they will fall below the current level of 0.5 percent. Any reduction in interest rates could negatively impact the costs of health insurance related benefits, as carriers respond by building lower investment yields into their pricing models.

Another implication for carriers is the fact that previously, UK based insurers could operate across the EU as a result of 'passporting.' Unless the continuation of 'passporting' is agreed to as part of the post-exit negotiations, it will be very difficult for insurance to be provided across the EU.

Impact on innovation and quality: The UK health care market currently benefits from investments from the European Commission to the tune of over €5bn since 2007. By being outside of the EU the UK would lose their ability to benefit from these investments.

Additionally, companies seeking to conduct clinical trials for new drugs across the EU can run multi-country studies by registering in a single EU clinical trial database. In a post-Brexit environment, companies in the UK seeking to conduct multi-country clinical trials will be forced to apply individually to each country, resulting in significant cost and administrative burden.

Finally, future coordination between the UK and the EU in dealing with pandemics, as well as other health threats, could prove challenging as the UK will need to coordinate with individual countries within the EU. While frameworks could eventually be put in place for the creation of a new EU-UK joint coordination mechanism, this process could take a few years.

Transparency, Communication and Motivation: Leading During Uncertainty

Free movement of labor: The Leave campaign has repeatedly suggested that there will be no impact on EU citizens currently working and residing in the UK. However this would also be dependent on how the EU will treat UK citizens currently residing and working in EU member states. As the existing legal basis for EU citizens to work in the UK will no longer exist as of the exit date, employers should carefully monitor the exit negotiations with respect to how existing EU workers will be treated. In the meantime, firms will need to get to grips with the citizenship and residency of their staff and consider encouraging key contributors to apply for permanent residency or citizenship to safeguard their status. Longer term, the recruitment of EU nationals and the ease of movement of existing employees to EU offices will likely be negatively impacted.

Market movements: While market volatility is expected to stabilize over time, firms will need to consider the impact of falling share prices and currency fluctuations. The impact of share price movements on retention values, long-term incentive plan performance conditions, executive shareholding requirements, all-employee share plans and shareholder dilution limits will all need to be assessed. A weakened sterling and the impact for international firms on financials, bonus pools and individual bonus awards will need to be carefully modelled.

Employee uncertainty: Although there will be a long period of uncertainty, firms need to reassure employees by explaining the possible scenarios and the impact on the business. To do this credibly, firms will need to complete a talent impact assessment, ensuring that the wider talent issues are identified and assessed.

Employment legislation: While wholesale changes are unlikely, the UK Government may take the opportunity to amend certain aspects of some EU-based employment legislation. Any changes would likely be aimed at providing more flexibility to employers, and could include the Working Time Regulations and Transfer of Undertakings (Protection of Employment) Regulations. Changes would require adjustments to policies and practices of UK firms.

Financial services remuneration regulations: EU Remuneration Regulations are implemented in EU member states through national legislation. This would mean that even after leaving the EU, all currently implemented regulations (such as Capital Requirements Directive IV, Undertakings for the Collective Investment in Transferable Securities V and Alternative Investment Fund Managers Directive) will remain in effect until amended in UK legislation. The UK regulators have also confirmed that firms should continue with implementation plans for legislation that has yet to come into effect. It should also be remembered that in a number of areas the UK requirements go beyond those required by the EU. In summary, significant changes to remuneration requirements are unlikely in the short term. One area of potential change is the possible abandonment of the bonus cap, a requirement not favored by the UK regulator, though this will likely be a negotiating point as the UK seeks continued access to the EU market post-exit.

Information & Resources

Visit to understand how Brexit might impact capital markets, trade, goods and services, and freedom of movement.

One Year On: A Tale Of 3 BrexitsOne Year On: A Tale Of 3 Brexits

Learn how the referendum will affect your strategies in the following areas: