Insurers writing international business in the London market should be able to honor cross-border claims after the U.K. leaves the European Union, according to International Underwriting Association CEO Dave Matcham.
Matcham during a press conference also downplayed the effect of Brexit on London market insurance staff, pointing out that "relatively small teams" are being sent to run London insurers' new European operations that have been set up to ensure companies' continued access to Europe when the U.K. officially leaves the EU in March 2019.
His comments came as the International Underwriting Association, or IUA, which represents non-Lloyd's of London underwriters in the London market, published its annual statistical report.
If the U.K. exits the EU single market, a scenario referred to as a hard Brexit, there are fears that insurers may not be able to honor cross-border contracts that expire after the exit date, as U.K. insurers would suddenly lose their licenses to trade in the EU and vice-versa.
But Matcham told journalists he does not envision a calamity wherein claims are not paid because of the manner in which the U.K. leaves the EU.
"I think members will continue to honor those contracts, and I think the regulators will construct some sort of agreement between themselves," he said.
Matcham's comments follow a commitment by Lloyd's of London, made on Oct. 9, to pay all valid claims in the event of a hard Brexit.
Moving to Europe
A solution to the claims problem for U.K.-based insurers is to ensure that any affected business is transferred to a company that is regulated in the EU, such as an existing operation or parent company, or one of the new companies.
London market insurers have already started to shift business to Europe in preparation for Brexit, according to the IUA. The report said the association was aware of individual cases of business transferring from London to a continental European parent, and noted that London-controlled premium written in the EU had almost doubled to £4.48 billion in 2017 from £2.31 billion in 2016.
Matcham said there would be "some staff movement," but that the association was seeing it "in quite small numbers at the moment," with one member recently transferring six staff to Luxembourg and another transferring three individuals.
But he added that he was not expecting a large exodus of London staff to Europe: "I'm not seeing at the moment any dramatic employment changes as a result of this."
Insurance and the broader financial services industry do not currently feature heavily in Brexit negotiations, with much of the emphasis being on goods, rather than services. Matcham said he was "disappointed" by this focus, but is hopeful they will get more attention. He said there is a growing awareness among politicians of the importance of the London insurance market, in part because of the role it plays in insuring big businesses such as European airlines, and also because work on the insurance program covering the 2024 Olympic Games in Paris is about to start.
"I don't think there are many markets that could provide the capacity and products for all the infrastructure of an Olympics [event]," Matcham said. "I think there are the beginnings of an understanding that there needs to be insurance or financial services more widely included in these discussions in terms of the longer-term agreement."