Aviation insurers publish new model clause to address Brexit uncertainty

Published by the Aviation Insurance Clauses Group (AICG), the clause would allow for the contract to be transferred to another provider if the original insurer or reinsurer is unable to continue cover or pay out on a cross-border claim as a consequence of Brexit.

Although designed with aviation policies in mind, the wording of the clause is "relatively generic". This will make it easy to adapt for use in other classes of business, according to Chris Jones of the International Underwriting Association (IUA).

"The aim of the new clause is to provide additional certainty for clients as the UK leaves the European Union," Jones said. "Without any new trade agreement or business continuity arrangement, it is possible that some insurers may not be in a position to continue providing cover or pay claims on cross-border contracts."

"Though it is still relatively early in the negotiation process, multi-year policies incepting now may potentially extend beyond the deadline for Brexit to take place. An effective policy response, therefore, seems a prudent course of action," he said.

The AICG was established in June 2005 in response to a European Commission aviation insurance initiative. It is based in London, and publishes non-binding standard wordings and clauses for use in aviation insurance policies.

Insurers can incorporate AICG model clauses into their own contracts, but are not required to use them. Similarly, clients are consulted on the use of any model clauses and can propose their own variations.

The new clause allows for the transfer of an insurer or reinsurer's participation in the contract to another provider. However, it will only be triggered in circumstances where cover cannot be provided as a result of the UK's departure from the EU, and cannot apply in any other circumstances.

The UK is due to leave the EU by 29 March 2019, two years after prime minister Theresa May gave formal notice of the country's intention to do so under article 50 of the Treaty on European Union. However, many aviation insurance policies last for two years or longer, taking the life of any new policies written now beyond the date of the UK's expected departure from the EU.

A number of UK insurers are proceeding with plans to set up subsidiaries in other EU member states to ensure that they can continue to write European business should the current 'passporting' regime, enabling firms based in one EU member state to trade anywhere in the bloc, no longer apply following Brexit.