FCA in Brexit warning over protection policies

FCA in Brexit warning over protection policies

Brexit could lead to potentially higher premiums on insurance products, the City watchdog has warned.

In the 86-page Sector View 2020, published last week, the Financial Conduct Authority said the withdrawal of the UK from the European Union posed a risk for insurance in the form of contract continuity.

It commented: "Firms are restructuring operations to reduce disruption to their customers, including setting up new European entities to exclusively service their EU businesses. They also need to ensure these contracts remain valid at the end of the transition period and so may need to amend them (‘repapering’)."

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For brokers and advisers operating in insurance, this means ensuring registration is valid in the relevant jurisdictions and ‘repapering’ the terms of engagement where necessary, which will also need to take into account general data protection regulations during this process.

According to the FCA: "These changes could increase industry costs, which are typically passed onto consumers. While the increase would theoretically be a one-off, the ongoing uncertainty around EU withdrawal could increase these costs further.

"Insurance firms have highlighted there is little consistency in regulatory regimes across the EU, which also drives up costs. This underlines the need for continued international co-operation between regulators."

Uncertainty over cross-jurisdictional travel for work or pleasure has also led some industry commentators to consider the possibility that healthcare protection products may become more popular post-December 31, when the transitional withdrawal period is over.

Timothy Dodd, managing director of Cignpost Health, said: "Thinking more about the UK private medical insurance market, we can expect to see a widening of provision for international cover, if we do indeed crash out of the single market at the end of the year.

"As we’re unable to rely on our European Health Insurance Cards, people will likely turn to traditional travel insurance or PMI providers to plug the European healthcare gap."

However, he also warned this in turn, would put "upward pressure on premiums due to a loss of reciprocal EU rights".

Some press reports last year queried whether any potential trade deals with countries such as the US might lead to an eventual portioning out of the National Health Service, thereby leading to a loss of its all-encompassing free services.

However, John Crook-Davies, technical director at Tabei, did not think Brexit itself might lead to a dearth of NHS services and therefore a need to rely more on healthcare insurance as in the US, for example. 

He said: "Whether the NHS moves services to the private sector, or whether it stays public, is unlikely to be driven strongly by trade deal concessions as a result of Brexit.

"If nothing else, the Brexit vote has taught us that the public responds badly to foreign governments driving domestic policy. It’s more likely that any change would be driven by a Conservative government with a massive majority and its own motivations."