Brexit and the Effect on the Insurance Industry
According to the Financial Services Authority (FCA) in the UK and the Insurance Association of Cyprus (IAC) in Cyprus, insurance is regarded as a highly regulated industry. The negotiations for the terms under which the UK will exit the European Union and on whether it will remain in the single market or not will continue for at least 1-2 years. Hence, the insurance industry will have to deal with an extended period of uncertainty regarding the newly imposed regulations. For example, once the UK leaves the EU, “it will no longer be subject to EU directives and regulation, including Solvency 2”, and it will implement its own regimes that would be a “greater compliance burden over time” for the firms that will operate in both the UK and the EU (Deloitte, 2019:2). There is a possibility that the ‘passporting rights’ between the UK and the rest of the EU may cease, not allowing UK insurers to carry out business in any EU state and vice versa (Acharyya and Hardwick, 2020:2/22). Contingency plans are in the process by the UK insurance companies for evaluating what would be their position in the case that the ‘passporting rights’ ceases.
AN Insurance Ltd is an agent of both Aetna International Plc. and BUPA, which are both insurance companies that write policies in the UK and are following UK regulations. Given that the firm’s agency contracts are directly with companies in the UK, the way that the agency agreement will resume post-Brexit is uncertain as none of the two firms have their own established branch in Cypriot territory. Aetna International Plc. (2020) has posted that Aetna policies “may be affected if [the policyholders] reside, or if [they] have employees who are residing, in a European Economic Area (EEA) member country.” Such policies will be renewed under Aetna Health Insurance Company of Europe DAC (AHICE), an insurer regulated by the Republic of Ireland. According to the Irish Times, BUPA applied to the Irish Regulator for granting an authorisation of a new insurance entity. BUPA stated that since their customers applied for an international private medical insurance (IPMI), it is their obligation to effectively serve them after Brexit as well (BUPA, 2020).
Post-Brexit, many prospects reported to be unsure on whether they should buy an A&H insurance policy that was written in the UK due to the uncertainty on whether the UK will exit the single market or not. Given that approximately 83% of the agency’s prospects who are requesting to buy a health policy of either Aetna or Bupa are non-UK residents, the results from the Brexit negotiations are of high importance. A decrease of 9.87% approx. in the demand for insurance policies from the abovementioned insurers has been observed.
The extent that Brexit could affect the brokerage’s business success during the next years depends on whether the findings of the negotiations will allow UK to remain in the single market and on whether the majority of prospects that AN Insurance Ltd would have will reside in the UK or not.
If the findings of the negotiations would allow UK to remain as a member of the single market, then the prospects who are interested in the products of Aetna International Plc. and BUPA would not be uncertain about the reliability of their insurance coverage and their demand would not be decreased. On the contrary, if the findings of the negotiations would force UK to exit the single market then the policies which will be written in the UK will not be able to cover residents from other states of European Union. Therefore, the contracts that AN Insurance Ltd currently has with the stated insurers would have to change. As mentioned above, the contracts which cover EU residents will have to be moved to the Ireland branch and the arisen uncertainty and confusion (e.g. change of mgmt. team, loosing negotiation power, etc.) will impact in a negative manner the future business success of the firm. If most of the prospect clients who are interested in an international A&H policy are UK residents, then the negative impact that Brexit would have to the agency would be counterbalanced. However, given that AN Insurance Ltd is based in Cyprus, it is expected that most prospects would not be UK residents. Therefore, if the findings of the negotiations would be forcing UK to exit the single market, the agency’s future business would be challenged.
Aetna, 2019. Brexit and what it may mean for your Aetna Policy [online] Available at: https://www.aetnainternational.com/en/about-us/legal-notices/brexit.html [Accessed 15 June 2020].
British United Provident Association, 2019. Irish Regulator Approves Bupa Insurance Entity [online] Available at: https://www.bupa.com/newsroom/news/irish-regulator-approves-bupa-insurance-entity [Accessed 15 June 2020].
Deloitte, 2019. Brexit Industry Insights: Insurance [online] Available at: https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/international-markets/deloitte-uk-brexit-industry-insights-insurance-final.pdf [Accessed 10 June 2020].
Acharyya, M., & Hardwick, P., 2020. Advanced Diploma in Insurance: 530 Economic and Business, The Chartered Insurance Institute, London.