Brexit deal’s focus on equivalence ‘unfortunate’ for insurers and brokers
The chief executive of the London and International Insurance Brokers’ Association (LIIBA) has voiced concerns that the draft Brexit agreement reached by the UK and European Union does not address or resolve the body’s fundamental concern: a lack of clarity around the Insurance Distribution Directive (IDD) which could jeopardise the ability of brokers to operate in Europe.
Christopher Croft, chief executive of LIIBA, said: “While it is encouraging to see a dedicated section on financial services, we have to hope that the fact the draft is solely built around the concept of ‘equivalence’ is for the sake of brevity and simplicity. Otherwise, those of us who have no equivalence regime have cause for serious concern. As do our clients.
“The current European legislation covering insurance brokers – Insurance Distribution Directive – has no concept of equivalence or the market access rights it might grant. Without this it is unclear what the agreement published yesterday would mean for our sector.”
Speaking today at a joint LIIBA-Lloyd’s Brexit seminar in early November, Croft stressed that the lack of clarity around the IDD meant that, to date, no European Union regulator had confirmed a belief that a wholesale broking model would be acceptable.
Croft said: “Most regulators are expecting EIOPA to provide clarity for brokers but our understanding is that EIOPA does not intend to so. This is because the scope of IDD is a matter for the European Commission. However, the Commission is unlikely to do anything that could be seen to be prejudicing the negotiations.”
Meanwhile, other commentators have noted that the focus on equivalence is not necessarily helpful because equivalence under Solvency II does not grant market access for insurance business. But they also note that a solution may be possible for reinsurers.
Bob Haken, insurance partner at Norton Rose Fulbright, said: “What the Political Declaration does say about financial services in general is that there will be commitments to ‘preserving financial stability, market integrity, investor protection and fair competition, while respecting the [UK’s and the EU’s] regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest’.
“This focus on equivalence is unfortunate for the insurance industry as, unlike some other financial services, equivalence under Solvency II does not grant market access for insurance business (reinsurance is treated differently under Article 172 of the Solvency Directive pursuant to which equivalence does come with market access). At present, therefore, it seems unlikely that the Withdrawal Agreement or Political Declaration will preserve passporting rights for UK insurers.
“For reinsurance, there is a glimmer of hope in that there is a commitment to reaching equivalence decisions as soon as possible after 29 March 2019, endeavouring to conclude those assessments by 30 June 2020. However, in a missed opportunity, neither document recognises the important issue of contract continuity following the expiry of the transitional period, meaning that the contingency plans that many hoped would be unnecessary will have to be deployed by the end of 2020.”
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