Insurance Monitor: Reflections on the 2019 general election

Divisions threaten industry as it seeks Brexit resolution

It is now the hard work starts. With a Conservative Government securely installed at Westminster, the UK’s departure from the European Union at the end of January is now certain. What is also certain is that the insurance industry will be divided over the sort of post-Brexit relationship it wants with the EU.

The UK and EU will now be hurled into 11 months of frantic negotiations to cobble together some sort of trade deal by the end of 2020. Many experts do not believe it will be possible to achieve much in that ludicrously tight timescale. Senior EU officials have already started talking about extending the transition period for up to another two years. It is hard to see how they can do this without the agreement of the UK government to sit on the other side of the negotiating table. With Prime Minister Boris Johnson looking to outlaw an extension in the amended withdrawal agreement bill this means we could still be facing a pretty hard Brexit at the end of the year.

That could impact insurance in many ways, not least because it would be likely that most trade with the EU would be conducted on World Trade Organisation terms. These have yawning gaps when it comes to financial services so without some softening in the form of a transitional period of mutual recognition it could be a very bumpy ride. Transitional arrangements for the insurance sector could be hard to achieve as few national regulators in Europe have offered anything meaningful. This is definitely not helped by the UK insurance market being divided on what sort of future relationship it wants with the EU.

The Association of British Insurers talks about not being a rule-taker. This aligns very neatly with the government agenda of seeking flexibility. It is an anathema to the EU. It reveals a deep split in the insurance industry in the UK.

Purely domestic insurers and brokers would welcome some relaxation of a range of rules that are part of EU membership, despite many of them being shaped by the UK. They certainly do not want additional rules, under Solvency II for instance, imposed without having any say.

The international insurers and brokers want alignment. For them, as one CEO put it to me recently, Brexit is rather like the line from the Eagle’s hit song Hotel California: “You can check out any time you like. But you can never leave.” If you want to maintain seamless relationships with clients across borders you have to stay aligned with the EU’s rules: you have to be a rule taker.

What is certain is insurance and financial services are going to be at the heart of the battle over future trade deals with the EU. Countries are queuing up to make their demands.

Ireland has said access for its fisherman to British waters is a quid pro quo for British financial firms and airlines to retain their current easy EU access to Ireland after the end of the year. With Ireland likely to face its own general election before Easter, this will be a sensitive, high-profile issue.

Spain has Gibraltar in its sights. The EU has told Spain it will have a veto over applying future EU-wide trade deals to Gibraltar. This will give Spain crucial leverage to tackle its long-running grievances over smuggling and tax evasion. With the amount of UK insurance – especially motor – now written in Gibraltar this is an issue that will need careful monitoring. There are already question marks over the security of Gibraltar-based insurers and this will be another risk factor to throw into the mix.

When it comes to Europe, the uncertainty is just beginning.

Scottish independence less of a threat

The conventional post-election wisdom, vigorously encouraged by the Scottish First Minister Nicola Sturgeon, is that there is now a huge mandate for a second referendum on Scottish independence, with the sub-text that it would be likely to produce a vote for independence.

The complete lack of clarity over the economic and financial management of an independent Scotland so unnerved many major financial firms in the run-up to the 2014 vote that they optioned huge amounts of office space in the City of London so they could move south of the border very quickly if the independence vote went through. That sort of contingency planning does not need to have a high priority now.

First, it is extremely unlikely that the Johnson government will grant the Scottish Parliament the powers required to hold a referendum.

Second, even if it did, it seems to me that Scotland is still most likely to vote to remain part of the UK.

The pro-independence vote in 2014 was 45%. The SNP vote in the General Election – despite Brexit, austerity and the strong performance of Sturgeon in the election campaign, was 45%. It suggest that support for independence hasn’t moved one jot in five years.

One less pressing uncertainty.

Let’s have some common sense over the small claims portal

If there is one issue that should be at the top of the industry’s agenda as it engages with the new government it is knocking some sense into the Ministry of Justice over the small claims portal.

People are losing confidence in this very quickly, especially claimant representatives. This would be a major setback as it is, at least in theory, an initiative that has the potential to make claims simpler, quicker and less expensive to handle. That is the win-win we are in danger of throwing away.

Secrecy and the lack of clear rules, especially about how damages are going to be valued, lie at the heart of the problem.

The MoJ has got to open up and quickly. It is still clinging to the launch date of April 2020 but that seems almost impossible to achieve now. The system being developed by the Motor Insurers’ Bureau was meant to have been tested during October but has anyone seen the results of that? Trying to find people who were involved and asked for feedback is almost impossible. This is not surprising given the dragging of heels at the MoJ but we urgently need a sharp dose of reality to get this project back on the road. 

Evans perfect foil for Biba in post-Brexit world

The British Insurance Brokers’ Association decision to stick with its policy of appointing an independent chairman following the end of Lord Hunt’s six year tenure is a sensible one. So is the choice of his successor, former MP, Member of the European Parliament and trade minister Jonathan Evans.

For years Biba was plagued with debates about who should lead the organisation. Should it be a big broker or should it be a small broker? It always seemed that one constituency of its diverse membership was unhappy with the choice. Having an independent chair with an external focus has enabled Biba to leave those divisions behind.

I worked closely with Evans when he was chair of the All Party Parliamentary Group on Insurance & Financial Services from 2010 to 2015, as well as interviewing him on several occasions when he was trade minister back in the John Major government in the early 1990s and while he was an MEP. He knows the industry, he knows government and he knows Europe.

He is also prepared to stick his neck out. When the APPG heard from the banks at the start of the payment protection insurance scandal he dismissed their suggestion that the compensation payouts would be counted in millions rather than in billions. The banks screamed “foul” but Evans stuck to his guns and was proved right, many times over.

Biba will need some of that determination as it engages with government in the post-Brexit world.