Giving insurance a voice: Brexit ‘nightmare’ for industry unless government breaks political deadlock

We are delighted to introduce our latest report - Brexit and the insurance sector: Towards 2020 and beyond - as part of Kennedys’ ongoing commitment to providing key business insights on Brexit and how it is likely to impact on the UK’s insurance sector.

Having moved beyond the first phase of the exit process, our report comes at a critical stage in the UK’s path towards leaving the European Union. With the focus now on the future trading relationship between the UK and EU, the outcome of the debate is vital for the long-term health of an extremely valuable sector to the UK economy.

This report builds on the findings of our previous report - The Insurers Speak - which we published in the weeks before the Brexit referendum on 23 June 2016. Once again, in answering what Brexit will mean for the UK’s insurance sector, we have undertaken in-depth interviews with senior insurance executives and policymakers.

A sustainable Brexit needs to be highly sensitive to the global competitiveness of the UK’s insurance sector.

As we predicted in 2016, the UK is now devoting huge energy and resource to reframing its trading relationships with the EU. A sustainable Brexit needs to be highly sensitive to the global competitiveness of the UK’s insurance sector. As the world’s leading financial centre, the City of London has built a global reputation for its skills and expertise in insurance and ancillary financial and professional services.

Our report in 2016 revealed a range of legitimate concerns if the UK did indeed vote to leave the EU. Two years on, with the UK now well down the road to exiting the EU, many of those concerns remain on the corporate risk agenda. Part 2 of our report identifies the key strategic issues, including the potential ‘red lines’ for the insurance industry, arising from the 2016 referendum vote to leave the European Union.

The various options for a new trading relationship between the UK and EU are outlined in Part 3 of this report. Given the ongoing political uncertainty around the exit negotiations, we look in Part 4 at the contingency planning issues firms are putting in place. The potential threats to future innovation are highlighted in Part 5 of this report.

In response to our findings, we provide recommendations on what UK politicians should do to protect the sector and offer a six-point plan to secure the future of the insurance industry post-Brexit. Our six key recommendations will safeguard future investment, talent and innovation in the insurance sector:

  1. Resolve the uncertainty surrounding the terms of the UK’s exit
  2. The UK should aim for flexibility around the exit
  3. Defining ‘best third country’ status – the new trading relationship
  4. The UK should not become a rule-taker
  5. Protecting workers’ rights
  6. Protecting investment in research and development.

In particular, we explore how long-term innovation in the insurance industry is core to maintaining the UK market’s leading position in established classes, as well as growth areas such as FinTech, InsurTech and RegTech. Our report outlines some key considerations including R&D, regional funding, data protection and the free movement of people, which must be given greater focus.

If the industry is to retain its significant market shares in key industries, it is imperative for the UK Government to listen to the industry and protect its interests.

Ultimately, breaking the current political deadlock in the UK Parliament is key to moving forward. If the industry is to retain its significant market shares in key industries - 60% in global aviation insurance, 52% in energy and 33% in marine insurance, to name but a few - it is imperative for the UK Government to listen to the industry and protect its interests. The proposed implementation period to December 2020 offers an opportunity for common sense to prevail while the UK and EU forge a new trading relationship. We offer our report in the hope it will support the realisation of such opportunities.