Most large UK insurers have executed contingency plans to ensure cross-border contracts are honoured if there is a no-deal Brexit.
Of the 20 large insurance companies contacted by the Financial Times, most said they would be able to pay claims regardless of the outcome of talks.
For some, such as Admiral, Hiscox, RSA and AIG, this has involved a laborious process called a Part VII transfer in which policies with EU clients are moved to a new or existing subsidiary elsewhere in the EU.
The process can take 18 months to complete and cost more than £1m for the largest transfers in fees.
Others have turned their UK-based companies into an SE — a form of legal entity that can be easily moved between EU member states. Companies going down that path include Chubb, Liberty Specialty Markets and the UK operations of Japan’s Mitsui Sumitomo.
In both cases, the most popular destinations for the insurers have been Luxembourg, Dublin and Brussels.
Insurers had hoped that their cross-border contracts would be dealt with outside of the Brexit negotiations.
But while the Bank of England and the European Central Bank have set up a joint working group to look at the issue, there may not be time for a solution ahead of next March, when the UK leaves the bloc.
Instead, companies have had to shoulder the cost of taking matters into their own hands, so that customers are not cut off from their insurance policies and pensions after Brexit.
Ashley Prebble, a partner at law firm Clifford Chance, said: “In the past six or seven months people have gone from ‘we’re hopeful that we can rely on a transition period’ to ‘there’s no point in being hopeful — we need to implement our contingency plans or we’ll be in a very difficult position.’”
The UK government has said that it will allow EU-based insurers to pay claims to UK customers, but so far there has been no indication that EU regulators will allow payments in the other direction.
According to the Financial Conduct Authority, the problem could affect 38m policyholders and £55bn of insurance liabilities in the European Economic Area.
London-based insurers say they face the choice of breaking their contracts or breaking the law, and the Association of British Insurers has called on regulators to sort out the problem. “It can be fixed and the UK government has demonstrated that it can be fixed,” said Jon de Beer, a senior adviser at the ABI. “They should just get on and do it.”
Eiopa, the EU insurance regulator, has insisted that it is up to insurance companies to sort out the problem for themselves.
But not all insurers have acted. George Swan, a partner at law firm Freshfields, said: “There are some companies taking a view that they don’t need to do anything with contracts that have already been written because it is inconceivable that politicians wouldn’t create a solution. It would be an odd outcome if regulators said it was a breach of their laws for claims to be paid but there is still great uncertainty on this issue.”
One of the biggest not to have acted is Lloyd’s of London, which is still looking at its options.
Lloyd’s said: “We continue to actively develop our plans in this area, which include a statutory transfer for the whole Lloyd’s market. However, we believe that an agreement that guarantees that financial contracts entered into before Brexit can be lawfully serviced post-Brexit is possible and in everyone’s interests.”
Some life insurers with pensions customers in other parts of the EU are also waiting for politicians to come up with a solution. While Aviva and Royal London have moved old policies to new EU subsidiaries, others — including Legal & General and a number of smaller life insurers — have not.
“The challenge here is that a lot of contracts sit with companies who have no intention of selling [new policies] in the EU after Brexit, so they are not going to want to set up a new subsidiary,” said Mr de Beer.