UK Covered Agreement by December
UK insurers will breathe a sigh of relief if a Covered Agreement between the UK and the US is in place by December—and it appears that Congress has the desire to make this happen, Robert Gordon, PCI’s senior vice president, policy, research and international, told PCI Today.
The agreement, to be negotiated by the Treasury’s Federal Insurance Office, would put UK insurers on the same footing as EU insurers once the country leaves the EU in March 2019. Gordon said the US understands the importance of such an agreement and there is a desire to ensure UK insurers are not disadvantaged by Brexit.
The timing is important because Dodd-Frank requires congressional consultations and a 90-day layover period for covered agreements. This means that, in order for such an agreement to be in place by March 29, 2019, it must realistically be completed by the middle of December.
While that timescale seems tight, Gordon said it is achievable because the agreement will duplicate the existing Covered Agreement between the EU and the US with only technical changes.
“It should simply be a case of changing the text and the currencies involved with no deeper changes,” he said.
He believes there is a desire in the Trump Administration to achieve this. “Whether this is because of the ‘special relationship’ or not, there does seem to be a desire to help smooth the transition when the UK leaves the EU,” he said.
The National Association of Insurance Commissioners (NAIC), which originally objected to the Covered Agreement with the EU, is also on board.
“No-one is objecting to this and many, especially our Lloyd’s syndicates who are members, are actively in favour of it,” Gordon said.
He added that this issue has been worrying UK insurers and Lloyd’s in particular. “This will be a relief to them, especially the fact there seems so much desire to get this done now.”
Asked what some of the bigger challenges facing PCI’s members are, Gordon said that the answer is unequivocally the “technology arms race” that has emerged in recent years since the advent of insurtech.
“Companies are racing to innovate but within limited budgets, it is tough to know what strategy to implement,” he said.
He added that an important change has occurred in this sphere. Whereas a few years ago insurers were concerned insurtech companies would disrupt the market to the extent they would win large amounts of market share, this is now less of a worry.
“Insurers are now partnering with insurtech firms instead,” he explained. “Both sides have realised that it is very difficult for newcomers to win market share when so much of that business is under-priced, with many insurers instead making money from investment income.
“Thanks to this and other factors such as the complex state-by-state licensing in the US, they have realised that partnerships are the way forward.”
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