Avoiding chaos in the insurance market due to Britain’s European Union exit is a top Bank of England priority and making sure cross-border contracts continue to pay out after Brexit is a major concern, its deputy governor Sam Woods said.
But a senior industry official said that Brussels appears in no hurry to take legislative steps to guarantee continuity in contracts, preferring instead that British insurers open hubs in the bloc or transfer the policies to entities there.
Woods said on Tuesday the BoE was putting a “huge premium” on the British government agreeing a transition or implementation period by the end of March before Brexit in 2019.
The BoE has told insurers to submit plans on how they would cope with a “hard” Brexit or Britain crashing out of the EU.
“We are pretty much up to speed in terms of plans,” Woods told the Association of British Insurers annual conference.
John Glen, Britain’s financial services minister, said he recognized that Brexit talks were creating uncertainty.
“This government is working flat out to secure a deal that protects the interests of our financial services industry,” Glen said in a video message to the conference.
Andy Briggs, chair of ABI and chief executive of Aviva’s UK insurance arm, said it was unclear whether cross-border policies being renewed in March would still be enforceable after Britain leaves the bloc.
“We need a transitional approach agreed now. “Let’s be pragmatic and customer focused,” Briggs said, adding that otherwise insurers will have set up new subsidiaries in the bloc to ensure continuity of service to customers.
Potential problems arise because there are 6 million British insurance policyholders with so-called EU27 insurers and 30 million EU policyholders with British firms.
British regulators have proposed a joint effort with counterparts in the bloc to ensure continuity for insurance and derivatives contracts, but Woods said there has been no response from the EU27 so far.
But Michaela Koller, director general of Insurance Europe, an industry body, said the thinking among some officials from the bloc’s executive European Commission is that many of the contracts only covered periods of up to a year in any case.
Regarding long-term policies of up to 30 years or more, Koller said the thinking in Brussels is that the only fix is to transfer them to the EU, such as in new hubs.
But Woods said the problems would not be solved by firms themselves given the time frame involved.
(Reporting by Huw Jones and Carolyn Cohn; editing by Louise Heavens and Alexander Smith)
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