United Kingdom

UK Client Brexit Update

This update provides a sharp and focussed overview of some relevant topics you will need to consider regarding the UK’s departure from the EU, including:

  • Governmental response
  • Aon’s preparations for Brexit
  • Client insurance programmes post Brexit

Governmental response

The insurance industry continues to work through the uncertainties posed by Brexit so that we can continue to service and protect UK and EEA clients post Brexit. However, it is worth remembering that the UK and EU authorities have an interest in ensuring that their local insureds are protected and can receive the services and payment commitments they have contracted and paid for –notwithstanding their insurers preparedness for Brexit. The various authorities are at different stages in addressing their approach to such contract continuity:

  • The UK government has already taken this into account and has introduced regulatory regimes that ensure that UK clients can continue to have valid claims paid by EU domiciled insurers in any Brexit scenario (the relevant provisions are made in the Financial Services Contracts Regime and the Temporary Permissions Regime).
  • Other EU governments are discussing the issue, publishing preliminary position papers or are preparing specific legislation that will allow UK domiciled insurers to continue to perform their obligations in the event of a no-deal Brexit. We are monitoring developments closely.

Aon’s approach – what are we doing to prepare?

Aon has a well-established Brexit preparation programme. We are focused on doing all we can to avoid client detriment by ensuring, so far as possible, that our clients, partners and markets can continue to do business with minimal disruption to the way in which they do business today. We are focused on solutions that are not unnecessarily onerous, cumbersome or more expensive to our clients. To this effect our programme comprises:

  • Continuing to monitor insurer preparedness and updating resulting broker guidance regarding what this may mean for new business, renewals, mid-term alterations and claims.
  • Establishing a UK branch of Aon Belgium BVBA, through which Aon can continue to serve all EU domiciled clients, providing them with continued access to the London market. The Aon Brexit team has been preparing this branch model for a number of months and it will be in place in the event of a hard Brexit.
  • Work streams to retain both EU national talent resident in the UK and UK national talent resident in the EU, reviewing our suppliers preparations for Brexit and implementing an intra-group data transfer agreement comprising “Standard Contractual Clauses” to ensure personal data can continue to be transferred between our UK and EU businesses following the UK’s departure from the EU.
  • Interaction with associations and public bodies to advocate for the interests of our clients. Aon is engaged with various influential business organisations, industry bodies and lobby groups, including the UK and European Regulators, European Federation of Insurance Intermediaries (BIPAR), the London and International Insurance Brokers Association (LIIBA) and the British Insurance Brokers Association (BIBA). These groups are all working on Brexit strategies and we are an active and key participant in these discussions.

What are UK insurers doing to prepare for Brexit?

As previously reported, in case of a no-deal Brexit, insurers could lose the authorisation to underwrite and service cross-border UK/EEA risks, including paying claims on insurance contracts underwritten pre-Brexit.

Insurers have been working on their Brexit plans for a long time, which have largely considered the worst-case scenario of a no-deal Brexit. These plans are now mostly executed, and most insurers have in place suitable solutions that provides for writing cross-border business post Brexit. The most common plans involve:

In the case of a UK domiciled insurer, either:

  • A transfer of domicile of the insuring entity from the UK to the EU, typically a Societas Europeae (S.E.) is chosen for this purpose, providing it with a fully authorised entity that can perform its obligations across the EEA.
  • Set up of a new insuring entity in the EU, to enable the insurer to meet its continued obligations across the EEA, and undertake a transfer of their existing obligations to the new EU entity (i.e. under a Part VII transfer).
    A Part VII is a legal transfer of insurance contracts to an EU domiciled entity (under Part VII of the Financial Services and Markets Act 2000). In this case the receiving EU domiciled entity is authorized to perform the contract and take over all obligations from the UK entity.

In either case, Luxemburg, Dublin and Brussels have emerged as the most popular choices for insurers. Alongside these plans, the insurer will then either retain a separate UK entity, or set up a UK branch of the EU domiciled insurer.

  • In the case of an EU domiciled insurer: The insurer will continue operations in the UK as a branch of the EU domiciled entity. The insurer will need to obtain UK authorisation but will be able to continue to trade unchanged in the meantime as the UK have granted temporary permissions to allow them to do so.

Aon has monitored the insurer Brexit planning landscape for months and is conducting working sessions with all the major insurers, to understand their position in the event of a “hard” or “no deal” Brexit. Although we have not independently verified the completeness or efficacy of insurers plans, from these conversations we understand that the majority are comfortable that they have appropriate plans in place. However, whilst most insurers are Brexit-ready, some are yet to complete their preparations, particularly for the continued servicing of current and past policies. For these insurers, it could mean that they may have to decide between breaking the insurance contract or breaking regulations in order to fulfil their obligations (e.g. pay claims).

Market selection remains a matter of client choice and we are of course happy to share with you the information that we have gleaned. Your usual Aon contact will be glad to discuss any questions you may have.

Client insurance programmes

There are many different options available to cover EEA risks post-Brexit. We are confident that the plans insurers and Aon have in place, will continue to provide clients with a choice of market and solutions. Recommended options will depend on several factors, e.g. the type of cover, the relevant regulatory position in each territory, the insurers capability (e.g. whether or not an insurer can provide cover for both UK and EEA risks under one policy) and of course your own preferences.

With so many variables, it is not possible to comment more fully in this general note, but your usual contact will be able to explain more, when/where appropriate.

For more information, please speak to your Aon contact.