In a 'no deal' Brexit the UK will become a 'third country' on 30 March and UK insurers and distributors will lose the right to conduct business freely in the EU. EIOPA has said that, in principle, insurance contracts concluded in the EU by UK insurers will remain valid once the UK becomes a third country. However, the insurers would no longer be authorised to carry out insurance activities with regard to these cross-border contracts.
EIOPA has advised national competent authorities (NCAs) in EU member states to allow for the orderly run-off of existing cross-border business in the event of a 'no deal' Brexit, with the appropriate supervision from the EU NCA. UK insurers who have not sought authorisation in an EU member state should not, however, be allowed to enter into new contracts, or renew or extend existing contracts.
EIOPA has also confirmed that any transfers of business from UK insurers to EU insurers which were initiated before Brexit, but which have not yet been finalised, will be allowed to proceed to conclusion.
The guidance (6-page / 320KB PDF) does not have automatic effect, but must now be implemented by the 27 individual EU NCAs. EIOPA's stated intention is to "foster supervisory convergence and ensur[e] consistent supervisory practices".
Insurance law expert Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com, said that the recommendations were "rightly focused on policyholder protection in the event of a 'no deal' Brexit".
"EIOPA cites 0.16% of insurance business in the EU27 as having no, or insufficient, contingency measures in place for the end of March 2019," he said. "While significant in terms of numbers of affected policyholders, this relatively low percentage is testament to the large amount of preparation work being carried out by UK insurers over the past 12-18 months."
"Affected policyholders will have peace of mind as the recommendations alleviate the possibility of a 'cliff-edge' scenario where UK insurance contracts become unserviceable. The orderly run-off process should be aided by the fact that, according to EIOPA, the remaining duration of liabilities for 76% of affected contracts is less than two years," he said.
The majority of UK or Gibraltar insurers have already begun implementing contingency measures to ensure that they can continue to service cross-border contracts should the UK leave the EU without a withdrawal agreement in place, according to EIOPA. As of November 2018, 124 UK and Gibraltar insurers, representing 9.1 million policyholders and €7.4 billion worth of liabilities, did not have sufficient contingency plans in place. However, most of this relates to low value, short-tail, non-life liabilities, with 76% of those contracts having less than two years left to run.
The EIOPA guidance contains nine recommendations designed to minimise the detriment to policyholders under these contracts, with a focus on orderly run-off and portfolio transfer. They also set out how NCA should deal with authorising third country branches, the lapse of authorisation, communications with policyholders and beneficiaries and cooperation with other NCAs. EIOPA intends to establish "cooperation platforms", to allow EU NCAs to exchange information relating to unauthorised cross-border insurance provision.
The guidance also sets out how NCAs should deal with life insurance contracts and pensions concluded between a UK insurer and a UK resident who has since moved to another EU member state. It confirms that, in this scenario, the NCA should "take into account... that the insurance contract was concluded in the United Kingdom and the UK insurance undertaking did not provide cross-border services for the EU27 for this contract".
"This guidance may assist many UK citizens retired abroad that have concerns about the ongoing service of their life insurance and pensions contracts," said Alexis Roberts.