Brexit-fueled consolidation of wholesale Lloyd's of London brokers would harm competition and specialization, according to Nick Davenport, CEO of wholesale broker EIS Partners.
Speaking May 16 on a Brexit panel at the British Insurance Brokers' Association, or BIBA, annual conference, Davenport said Christopher Croft, CEO of the London and International Insurance Brokers' Association, had estimated that the roughly 150 brokers transacting Lloyd's coverholder business in Europe could dwindle to somewhere in the region of 15 through consolidation in the event of a no-deal Brexit.
"That is not great, frankly, for competition, for specialization, for all the things that the London market is famous for," Davenport said, noting that the London insurance market writes about £8 billion of European business. He said that although not all of this would disappear, thanks to reinsurance and fronting arrangements, "it is nevertheless a big sum of money to lose if we can't come to some kind of a deal."
Coverholders are companies authorized to write business on behalf of Lloyd's syndicates.
The U.K. will leave the EU's single market when Brexit takes effect, meaning the loss of financial services passporting, which allows companies to trade across the European Economic Area without needing separate authorization for each country. Under a no-deal Brexit, there would be no arrangement for U.K. insurers and brokers to continue to trade in EU countries and vice versa without additional authorization.
Davenport said coping with a no-deal Brexit would be "fairly easy" for large retail brokers because they typically have subsidiaries in Europe they can use to continue to service business. And he noted that BIBA has an arrangement with the Worldwide Broker Network to help its small and mid-sized members access European business.
But he added: "I think the real problem is going to come about for wholesale brokers," for whom "probably the only solution" is striking a deal with a bigger broker that has a presence in Europe, unless equivalence and a free trade deal can be negotiated, which he described as "pretty unlikely."
Davenport said he is also worried about the potential for a withdrawal agreement that would leave the U.K. still subject to EU rules, but without any influence over them. "Somebody said that if you are not at the table you are on the menu. I'm pretty sure it would apply to us if we were rule takers under a services regime."
He described the U.K. broking sector as "the biggest in Europe" and said "we would be in a very awkward position if we were to take rules from Brussels."
Concerns about the effects of rule-taking on the U.K. insurance industry were also voiced later in the day by former U.K. Foreign Secretary Boris Johnson during his keynote speech. He said that because of "timidity" and an "aversion to risk and change," the U.K. ran the risk of being half in, half out of Europe.
Johnson, an advocate of Brexit, added: "If we get this wrong, Brussels could use the opportunity to undermine the competitiveness of our businesses and our markets, and force on more regulation of a kind that is designed to damage the competitiveness of a great U.K. industry."
Others sounded a more optimistic note. Speaking on the Brexit panel at the conference, Laura High, director of broker Yutree Insurance, said brokers had survived a lot of change, in particular to the regulatory environment, over the past 20 years.
"Brexit is a big change," she said, "but I think the broking industry is robust enough to get through it."