QBE's Richard Pryce on why the insurance industry must seek certainty on Brexit

richard-pryce-qbe4-2016

  • Passporting will be a key point in the negotiations around Britain's exit from the EU
  • There is no existing example of an EU trade agreement with a third country of the same scope as passporting
  • The industry will have to decide what we are going to do to provide certainty

We all planned for it but it’s fair to say that few among us believed we would actually have to execute our Brexit contingency strategies.

Yet, we enter the fourth quarter facing an uncertain future and a huge question mark over the industry’s continued ability to passport into Europe.

For our industry, passporting will be a key point in the negotiations around Britain's exit from the European Union. This matters for the wider UK economy because we have a £17bn trade surplus with the EU in services, and financial services account for perhaps one-third of total UK exports to the EU.

However, it is precisely because of the importance of financial services to the UK economy that negotiating a workable arrangement could be so difficult. As Sam Woods, CEO of the Prudential Regulation Authority, has noted, it would not be a straightforward decision for the UK to sign up to a set of financial services rules over which it would in future have no influence, given the size of its financial sector and the potential risks to the wider economy.

Negotiation at a cost
This may not be an easy negotiation. Existing models, such as the European Economic Area, would preserve a large measure of access to the EU market, but potentially at a cost, both in terms of UK influence over future regulations and conceivably in budget contributions. Recognition of regulatory equivalence would be at the European Commission’s discretion, and could be withdrawn.

Certainly, there is no existing example of an EU trade agreement with a third country that includes market access for financial services of anything like the same scope as the passporting regime. On the other hand, the interest in this does not all lie on one side. According to the Financial Conduct Authority, beside the 5500 or so British-registered companies passporting into the rest of the European Union, there are also around 8000 EU companies relying on passporting for their access to the UK.

From where I sit, this is an important point, but it is not one where I can sit around forever waiting for a resolution from the government. Our customers expect us to provide continuity and certainty; they will not want to hang around waiting to hear what the answer is.

Importance of engagement
At some point the industry will have to decide what we are going to do to provide that certainty. One thing I am sure of is the future of passporting is too important for the industry not to engage with government. Who understands the complexity of our industry’s offering better than us or indeed the value of our contribution to the UK’s gross domestic product?

One way or another, whether through our existing legal entities or through new structures we may have to set up, I am completely confident that we will be able to carry on providing the cover our clients need. The insurance industry has proved in the past that it is able to adapt to new circumstances, and it will prove this again in response to the new future that awaits us.

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