A Brexit clause has been published by the International Underwriting Association (IUA) to help companies manage insurance contracts as the UK leaves the European Union.
The Brexit Contract Continuation Clause aims to clarify how firms will continue to pay claims despite any business disruption caused by a situation in which adequate transitional arrangements are not agreed.
Insurers currently relying on the EU financial services passport to conduct cross-border business between the UK and continental Europe may not be licensed to continue providing cover, or pay claims, on existing contracts after March 2019, IUA explained in a statement.
The new clause, therefore, allows a risk to be placed with both a UK domiciled insurer and a ‘contingent’ EU-based insurer. In the event of any Brexit difficulties, this contingent insurer will step in and fulfill any policy obligations that the original carrier is no longer able to cover.
“The Brexit process continues to be quite uncertain in the nature of its final outcome and the future trading relationship trading relationship between the UK and remaining EU states,” said Chris Jones, the IUA’s director of market and legal services.
“A number of other market clauses have already attempted to address the issue of contract continuity, but it has proved difficult drafting a solution that covers all political eventualities. Another problem has been catering for the many different corporate structures, both currently present in the London market and planned by firms as part of their Brexit contingency responses,” Jones continued.
“Consequently, a key concern of the IUA’s new clause has been to ensure that the legal principles underpinning the contingent insurer approach are sound and that the terminology and intent of the wording is as clear as possible,” he said.
The IUA Brexit Contract Continuity Clause (reference IUA 09-077) has been drafted by the association’s Clauses Committee at the request of its Brexit Working Group. It is published alongside an accompanying commentary that outlines in detail circumstances in which it may be of use. Whilst the clause is primarily intended for insurance business, it could also, in principle, be used for reinsurance risks.
The clause will be freely available from the IUA clauses website. Its use is not compulsory and firms are free to adopt and adapt its provisions as they see fit.
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