Legislation reforming personal injury claims and Brexit will dominate the British Insurance Brokers’ Association’s (BIBA) work over the course of the rest of this year, attendees of its 2018 conference heard last week.
The BIBA 2018 conference in Manchester, which saw 213 exhibitors and 7,500 attendees gather for the two-day event, opened with a welcome address from chairman Lord David Hunt.
He highlighted five pieces of legislation of particular importance to BIBA and its members, including the Civil Liability Bill and whiplash reform.
“Clamping down on bogus claims is good for society as a whole,” Lord Hunt said, adding that reform of how the personal injury discount rate is set will also steady the ship.
Lord Hunt turned his attention to Brexit and the challenges it presents for the UK insurance industry.
The withdrawal bill, currently making its way through Parliament but facing a number of amendments, is very important to the insurance industry, he told BIBA 2018 attendees.
Some 38 million EU citizens buy insurance from the UK, Lord Hunt said, and “no-one wants to lose that”. Mutual recognition of regulation is important to maintaining that market, he explained.
Of the difficulties surrounding the withdraw bill and negotiations with the EU, Lord Hunt said: “Good old-fashioned British pragmatism will win the day.”
Andrew Bailey, chief executive of the Financial Conduct Authority, explained in his keynote speech to the BIBA 2018 conference that of paramount importance to insurance and financial services as a whole is the mitigation of so-called ‘cliff-edge risks’.
He said: “These arise in large part if there is a sudden and disorderly falling away of the passporting system without having an effective plan to bridge to the future. The passporting system goes both ways, from the UK to the EU, and from the EU to the UK, so both sides have a strong interest in orderly transition.”
“The risks of not getting this right are considerable, because without passporting the authorisations of those firms that rely on it fall away in the market into which they passport, unless some other action is taken. This matters because the authorisation provides the legal basis to continue to service existing contracts in many EU countries including the UK.”
The potential for calamity is great, Bailey said, because “servicing a contract means the legal basis to pay on claims to policyholders and receive premiums from them”.
According to Bailey’s most recent information, Brexit could affect £27 billion of insurance liabilities and 10 million UK policyholders, and around £55 billion of insurance liabilities and 38 million policyholders in the rest of the European economic area (EEA).
In December, the UK government committed to legislate to allow insurance companies from the rest of the EEA to continue to service insurance policies held by UK-based customers by creating a regime of temporary permissions.
This temporary backstop cannot be the long-term solution, however. With 2,775 brokers and other insurance intermediaries passporting out of the UK and 5,853 doing so into the UK under the Insurance Mediation Directive, Bailey hopes that “this backstop is just that”.
Bailey told BIBA 2018 attendees: “I hope that we will see an agreement between the UK and the EU which means that this backstop is just that, and instead we have a permanent commitment to open financial markets. In the absence of that agreement to date, we need the backstop. But, and this ’but’ is very important, such a temporary permissions regime implemented in the UK cannot cover customers in the rest of the EEA with policies from a passported UK insurer.”
“At present, such customers are reliant on their UK insurance company transferring existing contracts to legal entities located in the EU, a more complicated process. Any change or backstop arrangement here is in the gift of the EU not the UK. I very much hope that we will see progress soon to deal convincingly on both sides with these transaction risks.”