Large corporates based in Ireland typically have a suite of non-life insurance policies to cover a variety of risks, from what might be considered standard policies to cover property damage or public or employers' liability, financial lines policies to cover civil liability and directors and officers, to more bespoke policies to deal with cyber or other risks. Given the fact that the UK insurance market is the biggest in the European Union, it is likely that at least some of the policies held by corporates based in Ireland will have been written by UK or Gibraltar-licensed insurers.
From a risk management perspective, reviewing insurance policies to identify those that might be affected is crucial. In particular, the following polices should be reviewed:
- multi-year policies;
- long-term policies;
- liability policies (which can give rise to long-tail claims arising many years after the policy period);
- master policies covering risks situated in different jurisdictions; and
- any policy governed by UK law.
Irish policyholders should also be aware of the renewal dates on their policies – in particular, any policies that are due for renewal immediately before the Brexit date. Some policies that were incepted after the Brexit vote may have continuity clauses and these policies should be reviewed.
It is also important to look at open claim notifications and, in particular, circumstances that have been notified to insurers in previous policy periods but have not yet given rise to a claim.
Brexit's impact on Irish policyholders
Insurers can currently provide services across the European Economic Area by way of freedom of establishment or freedom of services (passporting) without being authorised in each country. However, as a result of Brexit, UK and Gibraltar-licensed insurers will lose their right to conduct business in Ireland under the passporting regime.
Many insurers in the United Kingdom and Gibraltar have been engaged in Brexit contingency planning for some time and have already taken mitigating actions. Irish-based policyholders may have already been contacted by their insurers to advise that their policy has been transferred to a related entity in an EU jurisdiction as part of a Part VII portfolio transfer. Such transfers will have been approved by the relevant UK court and the court will have considered the potential impact of the transfer on policyholders. Irish policyholders in this situation will no longer have the protection of the UK Financial Services Compensation Scheme (eg, in the case of a transfer into Ireland, Ireland does not have an equivalent scheme) but otherwise there should be little or no impact on their policies and cover. However, Irish policyholders should be aware that if they need to make a claim (or have existing claims), the claim will be made to a different entity than the one noted on the policy wording issued before the transfer.
The European Insurance and Occupational Pensions Authority (EIOPA) has issued recommendations to safeguard policyholders in the event of a no-deal Brexit and has given national regulators two months to confirm whether they comply with the recommendations. However, given that there is an element of individual state discretion in certain keys areas, there is still some uncertainty.
There is a risk that not all UK insurers will have implemented their transfer plans before the exit date.(1) For Irish policyholders that have policies with such insurers, the position depends on whether the withdrawal agreement is signed.
To mitigate the potential impact of a no-deal Brexit, the Irish government has published draft legislation(2) which will allow UK or Gibraltar-licensed insurers to administer run-off business in Ireland for three years. For Irish policyholders, this means that UK or Gibraltar-licensed insurers can fulfil their contractual obligations to their policyholders and can continue to pay claims after Brexit. However, there may be issues where claims take longer than three years to resolve or where long-tail claims do not arise until after the run-off period. It is unclear what will happen to these claims if the relevant insurers do not transfer the affected policies to an EU entity during the run-off period. It may be that UK or Gibraltar-based insurers' claims will not be in a position to process any claims at all. During the run-off period, no new business would be permitted so when it comes to renewal, Irish policyholders would be unable to renew with the same UK or Gibraltar-licensed insurer.
If Brexit proceeds based on the withdrawal agreement, the status quo for a policyholder will be maintained until the end of December 2020. This means that insurers can continue to:
- write new business;
- renew policies; and
- pay claims under existing policies.
The position beyond that date will depend on the terms agreed between the European Union and the United Kingdom; however, it can be expected that there would be some form of run-off regime that is along the lines envisaged in a no-deal Brexit.
Irish policyholders that are stockpiling goods or materials in advance of Brexit must be aware of the risk (aside from the increased exposure to theft or fraud) that they may find they are underinsured in the event of a loss. Suppliers that are shipping more goods in advance of Brexit should check that their trade credit insurance is adequate to protect against any payment default.
Finally, while this is not a consequence of Brexit, where policies are governed by UK law, Irish policyholders should continue to be aware of the impact of the UK Insurance Act 2015 – in particular, the obligation that this imposes on policyholders to make a fair presentation of risk.
Whatever form Brexit ultimately takes, Irish policyholders with policies written by UK insurers must assess any risk to their:
- existing portfolio of policies;
- ability to renew; and
- existing claims.
In a no-deal Brexit, Irish policyholders may find over the next 12 months that there is an increase in the cost of some premiums or the unavailability of niche insurance products as a direct result of Brexit, although this should hopefully change as the market adapts to the post Brexit landscape.(3)
Endnotes
(1) According to statistics published by the EIOPA, as of November 2018, 124 (or 0.16%) of UK and Gibraltar insurers had no or insufficient contingency plans in place.
(2) Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019.
(3) The impact of Brexit for insurance intermediaries is available here.
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