1. BREXIT AND THE UK INSURANCE ACT ST. LOUIS RIMS MEETING
SEPTEMBER 12, 2016
Ann Longmore Managing Director New York, NY

2. “Brexit” And not to be forgotten: the UK Insurance Act
This has been a very busy summer!
For those with insurance programs based in the UK, there have been record breaking changes
Two that we will consider are Brexit and the UK Insurance Act
We’ll consider both the possible short- and longer-term insurance implications.
The United Kingdom held a referendum on 23 June 2016 to decide whether it should remain a member of the European Union or leave it, which was won by the "Leave" vote.
The vote was 51.9% to leave and 48.1% to stay
Previously, Greenland, part of the Danish Realm, voted to leave the European Union's predecessor, the European Economic Community (EEC), in 1985.
Algeria left upon independence in 1962, having been a part of France until then.
In 1982, infuriated by the then European Economic Community’s control of its fishing industry, Greenland voted by 52% in a referendum to leave.
December 7, 2018

3. “Brexit”: the known and the unknown
The Treaty of Lisbon introduced an exit clause for members who wish to withdraw from the Union. Under Article 50, a Member State would notify the European Council of its intention to exit the Union and a withdrawal agreement would be negotiated between the Union and that State.
The treaties of the European Union would cease to be applicable to that State from the date of the agreement or, failing that, within two years of the notification unless the Council, in agreement with the State, unanimously decides to extend this period.
The two-year period of time in which the terms of the withdrawal agreement are negotiated is known as the sunset period.
The agreement is concluded on behalf of the Union by the Council and must set out the arrangements for withdrawal, including a framework for the State's future relationship with the Union.
The agreement is to be approved by the Council, acting by qualified majority, after obtaining the consent of the European Parliament.
Should a former Member State seek to rejoin the European Union, it would be subject to the same conditions as any other applicant country.
Source:
December 7, 2018

4. Positive Features of EU Membership Negative Features of Being in EU
What does it mean for the UK to leave the EU? Being part of the EU means being part of the largest trading block in the world, leaving means loosing -
Positive Features of EU Membership
Negative Features of Being in EU
The removal/absence of tariffs between the member nations
Access to global trade agreements negotiated centrally between the EU and the world’s largest economies
The free movement of people across the EU
The free movement of goods and services throughout the EU [in the world of insurance, we value the Freedom of Services Convention].
These last two are sometimes referred to as passporting.
[Excessive and potentially expensive] EU regulation.
Having to follow the dictates of the EU [Brussels], not controlling one’s own fate
The free movement of people.
Source:
December 7, 2018

5. What is the EU? Which Countries are in the EU?
28 (for the time being) member countries. The US’s largest trading partner. And for insurance, there is London… and the ability to issue one insurance policy for all 28 member countries.
December 7, 2018

6. What’s next? The 1st of 3 possible concerns
London is a global insurance center and home to Lloyd’s
Global insurers say that one of the big attractions of London and Lloyd’s was that they offered direct access to the 28 EU member markets
The insurers that use London as a hub are preparing to shift some of their operations out of the country
Shifting capital and people to other places in the EU is likely to diminish London’s role as a global financial center
Resulting in less competition as to pricing and terms, and reduced product innovation.
The latest report, shows the London commercial insurance market was the source of 10% of UK financial services GDP.
December 7, 2018

7. What’s next? The 2nd of 3 possible concerns
Loss of Freedom of Service (passporting)
With the UK no longer in the EU, the ability to have one contract/policy be legal, binding and enforceable in all EU territories – will be gone.
The likelihood is that some/many purchasers of insurance will restructure or move their placements, especially their FOS policies.
Desirable Characteristics in a Jurisdiction
Choice carriers have local licenses
Passporting capabilities (FOS)
The ability to carry over current terms and conditions – which means an English language policy
Common law jurisdiction (or choice of law?)
Sophisticated insurance market and court system.
December 7, 2018

8. We have time to respond to Brexit, right?
Under Article 50 of the Treaty of Lisbon, member countries have 2 years to negotiate the terms of their leaving after formally notifying the European Counsel of its intent to exit; longer periods of time can be negotiated
No formal notification has yet been tendered, so the clock hasn’t started ticking yet
But what of longer-tailed lined of coverage where the terms of the policy or the types of claims may potentially extend out beyond the terms of negotiating Brexit
Especially if these include coverage in jurisdictions where non-admitted insurance is not permitted and there is no local policy other that an FOS feature…?
Keep calm and carry on.
December 7, 2018

9. The new UK Insurance Act
What may cause concern
What Airmic says…
“The Insurance Act is the most fundamental change to the law of England and Wales, Scotland and Northern Ireland governing commercial insurance and reinsurance since the Marine Insurance Act The Act, which will govern polices placed, amended or renewed after 12th August 2016, makes amendments to the Marine Insurance Act 1906 to reflect modern commercial practice. The Act aims to address the imbalance between insurer and insured rights by making significant changes to several areas…”
The new duty of fair presentation (or disclosure) has two possible parts:
disclosure of every material circumstance which the insured knows or ought to know, or
b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
Airmic (the Association of Insurance and Risk Managers in Industry and Commerce; formerly the Association of Insurance and Risk Managers) is a UK-based association and representative body. Established in 1963, it exists to promote the interests of corporate insurance buyers and to encourage best practice. It is run as a not-for-profit company limited by guarantee, governed by a Board of Directors elected from members with support from a full-time London-based secretariat.
Parts a and b fall within Section 3(4) of Part 2.
Exceptions are found in Section 5:
(5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if—
(a) It diminishes the risk,
(b) the insurer knows it,
(c) the insurer ought to know it,
(d) the insurer is presumed to know it, or
(e) it is something as to which the insurer waives information.
December 7, 2018

10. Six components highlighted by Airmic as particular areas of concern
Insurers will be considered to have known, or ought to have known:
matters known to individuals who participate on behalf of the insurer in deciding whether to take the risk and on what terms – for example, underwriting teams;
knowledge held by the insurer and readily available to the person deciding whether to take the risk;
matters known by an employee or agent of the insurer and which should reasonably have been passed on to the person deciding whether to take the risk.
December 7, 2018

11. What does this mean for global programs?
If the commercial program is issued out of the UK and/or has an English choice of law as to contract interpretation, it is likely that the new UK Insurance Act will apply if it was placed after August 12th
It’s brand new, so there is no exact precedent (but note that while the duty of fair presentation was not as extensive before, the carriers had more onerous remedies)
Insurers won’t be able to rely on a passive approach to disclosure if seeking to exercise remedies for non-disclosure with new proportionally remedies; more active engagement will now be encouraged.
For further information, resources and updates, see:
Previously, ‘basis of the contract’ clauses could convert all representations made in the course of a commercial insurance contract into contractual warranties. Breaching a warranty would completely discharge an insurer from liability for all risks covered by the policy from the time of the breach, even if the warranty had no bearing on the risk.
Part 3 of the 2015 Act has now banned ‘basis of the contract’ clauses from non-consumer insurance contracts.
Instead of discharging liability, a breach of warranty now results in the insurance cover being suspended for the duration of the breach and re-instated once the breach has been fixed.
An insurer will no longer be able to rely on non-compliance with a warranty, or any other term relating to loss of a particular kind or at a particular location or time, if the non-compliance could not have increased the risk of loss that occurred in the circumstances that it occurred. For example, if a requirement in a policy to maintain window locks is not complied with by the insured party and loss is subsequently caused by flooding, then the insurer will no longer be able to rely on the insured party’s non-compliance to avoid liability as the maintenance of window locks could not have reduced the risk of flooding occurring.
December 7, 2018