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After the trade pact: How Brexit will affect insurance

Consequences of Brexit for financial and insurance services

Within the EU, in addition to free trade in goods, there is also freedom of services (“Freedom of Services”, or FoS for short). The trade agreement does not currently include the finance and insurance sectors. The consequences are the loss of the so-called “passporting” or the FoS regulations for British and EU insurers, which will also affect German insurance policies after the exit. In the course of so-called “European policies”, German companies were able to insure risks in Great Britain relatively easily through the German insurance contract. The advantage of this Europe-wide uniform insurance protection was, among other things, the waiver of local policies or contracts.

With the implementation of Brexit, German and British insurers will no longer be able to write risks in Great Britain or the EU. So that British insurers can continue to operate within the EU, they have set up branches in the EU in recent years, whose contracts and business activities are still regulated by the European Financial and Insurance Authority EBA / EIOPA. For example, the British insurance marketplace Lloyds of London transfers all insurance contracts with policyholders from EU countries to the Lloyds Brussels branch. At the same time, German insurance groups also strengthened or founded their presence in Great Britain in order to be able to continue doing local British business. This means that established British insurers can continue to be used for risk placement within the EU. A shortage of insurance capacities is not to be expected as a result of Brexit.

Valid German insurance contracts to cover British risks with terms beyond January 1, 2021 are initially not affected by Brexit (based on Section 66a VAG). For a period of a maximum of 21 months from the unregulated withdrawal, BaFin, as the competent supervisory authority for German insurers, is authorized to set a period for the processing of the insurance contracts concluded up to the withdrawal for the benefit of policyholders and beneficiaries of insurance benefits. German insurers should register under the "Temporary Permissions Regime" (TPR) in Great Britain in order to ensure continued business activity beyond January 1, 2021. Insurance brokers are on an equal footing with insurers in this regard and also need a license in Great Britain via the TPR in order to be able to continue servicing contracts in Great Britain beyond 2020, especially in the event of a claim.

Dr. Alexander Skorna: “Funk also successfully passed the TPR procedure. Our system house now has the status of an insurance broker registered in Great Britain and can continue to look after contracts for the transition period to be defined. "


Adjustments to insurance contracts

The pressure to adapt for German policyholders with risks in Great Britain is initially low due to the comfortable transitional provisions of the insurance contracts. There are basically two models for hedging against risks in Great Britain:

  • Model 1: Transfer of risks in Great Britain into local contracts. This can also happen for existing cover after Brexit in the above-mentioned BaFin-regulated transition period.
  • Model 2: Insuring against risks in Great Britain through the insurance of financial interests (Financial Interest Clause or “FinC”). This form has already been implemented in some relevant contracts via the so-called “Brexit clause” and extends insurance protection against financial losses due to impairment of the German parent company's investments in risks or companies in Great Britain. The prerequisite is that such damage is also insured through the contract.

Funk generally recommends using local policies in Great Britain for new contracts from 2021 to cover British risks. The possible conversion of current FoS contracts into FinC contracts burdens companies with the German insurance tax obligation, which must be taken into account in the overall assessment and billing. For project coverage with clearly concluded terms of several years, a FinC solution can still offer advantages; a local policy is not always required. Local claims, for example as a result of liability damage, must, however, be secured more appropriately in the context of the locally applicable liability regime in Great Britain via appropriate local contracts.

Political risk expert Dr. Skorna: “Ultimately, in the course of the Brexit, the limits for so-called retroactive risks in property insurance have to be checked, which cover the effects of property damage at suppliers and buyers. With the legal realization of Brexit that has taken place, the limit is usually significantly reduced for unnamed suppliers or buyers. "

If you have any questions about insurance issues in the course of Brexit, please speak to your radio contact or our experts. We will show you appropriate solutions in a transparent and comprehensible manner.