Huw Evans - Director General, ABIOur world changed in the early hours of 24th June, just three months ago. For forty years, our world-leading insurance & long-term savings sector has taken for granted a trading relationship with continental Europe, ties that deepened significantly with the development of the single market and passporting in the 1990s.
For many leaders in the sector, the shock at the result of the EU Referendum was less that of an elite forcibly acquainted with the views of less privileged fellow citizens, as some would argue, but more stunned disbelief at the scale of the challenge to unpick this relationship and attempt to replace it with something as beneficial to our customers and wider economy.
That task has now started in earnest with sustained work throughout the summer by the ABI, TheCityUK, our sister trade bodies and major firms to scope out what will need to change legally as a result of EU Exit and what the UK Government should be looking to deliver as part of any successful replacement relationship. This work will look at both the challenges to overcome and opportunities we must grasp, to make the best of Brexit.
The ABI has conducted a significant piece of analysis we will be sharing with our members that maps out all the legislation that particularly affects the insurance and long terms savings industry. This mapping exercise truly sets out the scale of the challenge. It identifies around 80 EU directives and regulations that will need to be worked through if we wish to ensure a broadly consistent framework of customer rights, legal responsibilities and financial stability.
No doubt some will argue that the point of Brexit is that not all these rules need be transferred, and in a few cases these may well represent one of the opportunities Brexit provides for the industry. More importantly though, UK firms will be legally responsible for following these rules until the point of exit. So there will at least have to be a reckoning across the piece with the likelihood that a raft of new UK law will need to be created to ensure a basic common framework for any future trading relationship.
Setting out what the UK insurance & long-term savings sector would like to see in a future UK-EU relationship is obviously more fraught with uncertainties given the very large number of political variables within the member states of the EU, as well as the UK itself. Nonetheless the ABI Board has set out five areas it considers important for the UK to focus its efforts on as it prepares its initial negotiating position. These are:
- Securing a regulatory environment that is appropriate for the UK market. As the largest sector in Europe, it is not feasible to be in a position where we have no say on how we are regulated. No doubt such an outcome would be heavily resisted by the Bank of England even if it were desirable for other reasons. In particular, with the future development of Solvency II and the UK prudential regime up for debate we have to ensure the PRA has the opportunity to play a full part in its ongoing implementation, especially on critical areas such as the Risk Margin. Both principal UK regulators see the importance of a post-Brexit UK being seen as a good place to do regulated business in, marking this out as a genuine opportunity for the industry.
- Retaining the ability to passport out of and into the UK is a vital concern for many of our members ranging from our many wholesale GI members to some long-term savings providers who make extensive use of it. We are keen to ensure the passporting debate is not seen entirely through the prism of international wholesale banks, important though they are, but reflects its importance across parts of the insurance sector and especially to Lloyd's of London.
- On data protection, it will be vital to closely mirror the EU data regime if we are to avoid a quagmire of unnecessary complexity around how personal and non-personal data is protected within groups and outsourced relationships. This is an area that has received very little political or media attention yet but is rightly near top of the worry list for many providers. Insurers handle billions of pieces of data on their customers behalf, so if handled badly this could prove a major headache.
- On skills, the industry needs protection for its existing EU employees as soon as possible, while arguing as part of a broader business grouping for an improved future migration policy that enables the employment of high-skilled professionals from both within and outside the EU.
- On overseas trade, we need to see a strong focus on regulatory dialogue and international agreements in overseas financial services markets, especially in India and China. This is an area where Brexit does open up new horizons and as a country and an industry we must grasp them. That, however, requires real focus and a genuinely ambitious approach from government. Some of the public focus on possible trade deals so far has been too narrow and focussed on goods. Given the length of time they take to negotiate it’s important there is a real focus now on including financial services in new agreements.
Underpinning all this is our strong desire for the Government to understand that business decisions on future locations and markets won’t fit neatly into a very protracted political timescale. Which is why we will be bringing home the importance of transitional arrangements between Brexit and what replaces it at every opportunity.
So, three months on we are better informed about the options for replacing our membership of the EU but no further forward in understanding what is likely to be politically possible. That is why it is important that our world-leading market - the largest in Europe - is clear on what a successful outcome would look like, alongside the necessary detailed work to underpin such conclusions.
There are many challenges ahead but handled correctly, the future for the UK insurance and long term savings industry remains bright. The ABI has a vital role to play in securing this future and will continue to work flat out to support our members, however long it takes.
Huw Evans is Director General of the Association of British Insurers (ABI)