On June 24th 2016, 17.4 million people voted in favour of the UK leaving the European Union, marking an end to a 43 year relationship. The fact that 16.1 million people voted to stay in the EU illustrates just how close the vote really was; 51.9% against 48.1%.
In the wake of Brexit is a wave of uncertainty sweeping through every echelon of society; nobody knows what will happen, so nobody feels safe. Can the rich stay rich? Will the poor get poorer? What about travel? Trade? Tourism? These are but a few of the questions on the lips on millions.
This uncertainty naturally extends to the insurance industry, with many brokers panicking at the potential repercussions of this referendum, especially those who work in smaller, niche areas such as motorhome insurance.
The initial problem for brokers of motorhome insurance will be the lack of answers they can provide to their customers. Motorhome owners are notorious for their love of travelling Europe. For many Brexit has provided a wave of uncertainty regarding what the future will hold for their cover when in Europe. Will they have reduced travel allowance, will they have to get Visa’s, and will the breakdown cover work effectively? At present nobody has the answers to these questions and that in itself leaves people worried.
However, perhaps all this panic is somewhat premature.
Article 50 of the 2009 Lisbon Treaty sets out the process for an EU member leaving and, although it has never been enacted, it includes a 2 year negotiation period during which the departing country (in this case Britain) can establish future trade agreements and dealings with the remaining EU members. If after 2 years an agreement still has not been reached, Britain will have to exit with no deal in place, unless the member states unanimously agree on extending the negotiation period. It is worth adding that these negotiations won’t even begin until a new Conservative leader has been elected in September. So for at least the next 2 years, Britain will still be a member of the EU and will not feel the effects of the Brexit.
The primary concern for brokers surrounds the EUs ‘single financial passport’, also referred to as ‘passporting rights’. It allows insurers to conduct business freely across the EU without having to set themselves up as a new legal entity in each country, saving money and time in the process. If this benefit is withdrawn, it may result in British brokers and insurers requiring licenses to continue doing business in the EU and vice versa, which could be damaging to trade; there is no telling how complicated, or indeed expensive, obtaining one of these licenses may be. For bigger companies this may be a cost than can be easily absorbed, but for smaller companies and more niche areas, such as motorhome brokers, an expensive licensing procedure will have a far greater impact. It is only at this point that we will start to have the answers that motorhome owners are looking for.
As for the bigger picture, although the media may be in full meltdown mode, convinced Britain is a condemned man on the way to the gallows, many Insurers are far less pessimistic. Lloyd’s of London Chairman John Nelson is “confident that Lloyd’s will stay at the centre of the global specialist insurance and reinsurance sector…[because] Lloyd’s has a well prepared contingency plan in place and will be fully equipped to operate in a new environment”. Standard & Poor are equally optimistic, seeing “the insurance sector as less exposed to the leave vote than the rest of the financial sector” and that ultimately UK insurers operating in the EU, and vice versa, could “through appropriate planning, continue their businesses largely uninterrupted…even in the absence of any trade agreements or passporting rights”.
The City of London Corp is even more forthright in its Brexit assessment, firmly dismissing all the scaremongering; “The City of London has thrived as a financial and trading centre for more than a thousand years and will continue to do so” said policy chairman Mark Boleat, “There will be no mass exit of banks and financial institutions from the Square Mile…[it is] still the financial centre of the fifth largest economy in the world”. They do, however, acknowledge the importance of the UK retaining access to the single market. This is echoed by the Association of British Insurers (ABI), who believe the UK government must “focus on ensuring the UK remains a globally competitive place to do business”.
For the time being, it seems like brokers do not have too much to worry about. As the bigger underwriters and industry experts seem quite calm about the referendum results, it would seem silly to let the panic set in this early. With at least 2 years of negotiations ahead, it will be a long time until the UK feels the true impact of the Brexit either way, but for the time being at least it is far from the doom and gloom we are being sold.