BIBA warns Solvency II equivalence will be critical to UK

The British Insurance Brokers’ Association (BIBA) has warned that the UK government must prioritize securing Solvency II equivalence status post Brexit – assuming full access to the single market is not possible – if the country’s insurance market is to retain its size and importance as a global hub.

The representative body has sent a letter to senior government figures, spelling out what, in its members’ opinions, are the most important considerations as the country faces its future outside the European Union (EU).

One of the most important issues highlighted is the benefits of tariff-free cross-border trade within the EU and European Economic Area. It noted that the UK is the third largest insurance market in the world and enjoys a balance of trade surplus in insurance-based products.

The letter said: “Much of this will be at risk if the UK were to lose the ability to trade freely with the EU. The issues we raise in this letter have been shared and agreed with both the London Market Group (LMG) and the London and International Insurance Brokers’ Association (LIIBA). We also share the concerns raised by the CBI and their five main principles.”

BIBA believes that the best interest of their members is to remain within the single market, rather than just having access to it.

The letter stated that BIBA members trade internationally and use the “passporting” rights accessible to them under the Insurance Mediation Directive and the soon to be effective Insurance Distribution Directive. The UK will now have to alter its own laws before expiry of any two-year window from Article 50.

The letter said: “This passporting right is particularly significant for business that is brought into the Lloyd’s and London market and for firms that have set up branches in EU states where they operate under the ‘freedom of establishment’ principle.

“In addition, some firms have their international headquarters based here as the UK acts as their gateway to Europe.

“The ability to passport both into (to obtain customers) and out of the EU (to use EU insurers to increase competition and choice for customers) is critical to maintaining the level of trade that the UK currently benefits from.”

It also mentions that “passporting” permits UK insurance brokers to support wider UK Government activity, for example, UK insurance brokers use the “passporting” feature in order to handle the insurance needs of Her Majesty Forces personnel stationed in European Union (EU) territories like Germany, Italy and Belgium.

The next issue put forward was that some BIBA members domicile their international headquarters in the UK because it acts as an entrance to Europe.
To keep their leading position as the European centre of insurance broking, the letter suggests that an “equivalence operating model” is essential but even this will not be a perfect solution.

“If it is not possible to be in the single market and the UK obtains third country equivalence status it is important to point out that we will not be offered any assistance by the Markets in Financial Instruments Directive (MIFID2), Solvency II or the credit or mortgage regimes that allow for equivalence in respect of ‘professional clients’.

“We would need direct support from Government in arranging new bi-lateral trade agreements. To continue the free flow of business between the EU and the UK, it is important that our regulatory regimes remain comparable.

“This must be agreed regardless of Brexit, particularly in regard to Solvency II and IDD. (If Solvency II has an equivalence status we may still be unable to transact business if our IDD does not get a similar level of equivalence).”

The letter adds that the Financial Conduct Authority (FCA) has been instrumental in the development of the financial services regulations that are applied across Europe, therefore equivalence should be possible.