Brexit: this could be hard.

The worst-case scenario is the most probable one: a hard Brexit. This will happen if the EU and the United Kingdom cannot agree on the conditions for Britain's withdrawal from the European Union, leading to an uncontrolled exit. The United Kingdom will then no longer be a member of the EU, consequently becoming a 'third country' without access to the EU Single Market.

A hard Brexit would have serious consequences for companies in Germany and the United Kingdom. UK insurers will no longer have a licence in the EU. They might even no longer be allowed to settle claims from current or past insurance periods. German companies that use international insurance programmes involving UK providers to cover their risks, might then face a challenge: If UK insurers are no longer allowed to operate in the EU, they must be replaced quickly.

In the light of the forthcoming extension of insurance contracts for the coming year, companies will therefore have to look at the extent to which they are using UK insurers for coverage of their risks as well as what Brexit strategy these insurers are pursuing. Conversely, this also applies to those EU insurers who have underwritten UK risks so far but will no longer have a licence to do so.

UK insurers are currently showing increased efforts either to relocate to the EU or to found another European entity. Some UK insurers are already transferring their European business to a subsidiary located in an EU Member State. These transfers are intended to ensure that insurers will be able to fulfil their obligations towards the policyholders even after Brexit.

It is still not clear whether the "Grandfather Clause" will be effective in current policies. This would imply that insurers could still meet their obligations in full under these polices, something which would mitigate the effects of Brexit.

Notwithstanding the above, in order to maintain full insurance cover even in the case of a hard Brexit, the companies concerned should examine their insurance programmes and policies closely in order to establish which covered risk could materialise.

For further information on Brexit, please go to: aon.com/brexit