Unless you’ve been in a coma for the past six months then it probably hasn’t escaped your attention that, on 23rd June this year the electorate will be going to the polls to decide whether or not to stay wedded to the European Union (EU), or file for divorce and start seeing other people.
It’s hard to turn on a TV, radio or Facebook feed at the moment without some politician, pundit or journalist expressing a view on whether the so called ‘Brexit’ (Britain’s exit from Europe) is a good or a bad idea. One thing that is clear, however, is that should we decide to, as Fleetwood Mac almost said, go our own way, then there will be implications for UK industry. With the insurance sector no exception.
Why Leave One of the World’s Largest Insurance Markets?
Leaving the EU would mean the UK insurance industry removing itself from one of the largest single markets in the world. A market in which UK-based companies can operate and sell their products freely and without additional permissions to the near half a billion people within the 28 member states.
Which might be a concern if it means that the UK can no longer operate openly on the continent. The overriding fear for many a business is that a choice for Brexit might ultimately lead to firms having to set up new subsidiaries within the EU. A move that would not only be a hassle, but would likely come at significant expense: new capital needs, new recruitment, potential new legislative requirements.
And we already know that this is a live concern in the industry. German powerhouse Deutsche Bank, who’ve had a significant presence in the UK insurance market over the years have already made it clear to the press that they might have to consider leaving UK shores in the event of a Brexit vote .
The question would then be: would other companies, UK insurers included, follow suit?
Is the EU Market all that?
However, isn’t there an argument to suggest it might be prudent to leave such a lumbering behemoth?
After all, wasn’t the Euro Zone crisis of recent years an example of the drawbacks of being a smaller part of the larger whole?
And what’s to say that free trade operations can’t be negotiated between the UK and EU, allowing British-based businesses to continue operating in Europe?
It’s at this point in the argument that pundits tend to yell:
“Look at Switzerland!”
Switzerland might be considered the poster country for team Brexit. A thriving non-EU country which still enjoys access to the Euro market, albeit without having to sign up to all the laws.
Zurich remains one of the big global names in the insurance industry, operating successfully from its Swiss HQ, seemingly unburdened by the harsh regulations that EU law is imposing on the market.
It’s a best of both worlds scenario that the Brexit advocates argue would make the UK insurance market stronger, more competitive and, importantly, liberated from the perceived stringency of regulations such as Solvency II.
Regulation without influence
But is liberation from Solvency II worth the price Britain would pay by giving up its place at the negotiating table?
Brexit supporters will argue that leaving will give the UK the ability to free itself from a regulation that’s heavy-handed and costly. For instance, Lloyds of London have spent hundreds of millions in contingency costs due to Solvency II.
Why, then, are Lloyds so keen that the UK should remain within the EU?
Because retaining a level of influence and presence at Europe’s top table is considered vital for future growth in an ever more global economy. In order to stay competitive the UK market needs to be able to operate not only in Europe but across the world. And, as Europe negotiates with Asia and, in particular, the US over free-trade agreements, isn’t it in the UK’s best interest to be a part of that discussion?
Barak Obama seems to think so. And, while his pro-Europe stance went down like a metric ton of lead with the likes of Boris Johnson, the view from across the Atlantic is not really one to ignore, given the importance placed on accessing that particular market.
As a member of the EU, the UK has an ability to help shape and influence policy.
If they are not in the EU, it does not.
Solvency II might be unpopular, but the idea that leaving the EU would free the UK market from regulatory shackles is somewhat wide of the mark. So say the powers-that-be at Lloyds and even the Deputy Chairman of the Bank of England. It’s a misconception that we would be spared the red-tape of overt regulation by leaving the EU with UK regulation likely to be as stringent as any imposed from Europe.
Again, retaining a degree of influence within the Euro Zone allows the possibility of the UK insurance industry help shape, soften or modify controversial regulation in a way it could not as an outsider.
The Certainty of Uncertainty
Few would argue that the EU is perfect. It has its flaws, its drawbacks and inefficiencies without a doubt. But the prospect of departing and potentially leaving the single market is a prospect fraught by doubt and fear. A step into the unknown for an industry that, on the whole, finds little to be excited about when it comes to the unknown.
As with all aspects of the great Brexit debate, the only way we will know what will happen if we leave – is if we actually leave.
Mostly, what we’re left with is conjecture and educated guesses. And a hefty chunk of politically inflected opinion, voiced to sway the argument one way or another.
The only certainty, in fact, is that the impeding referendum is creating a period of great uncertainty for the insurance market as a whole.
And that, in itself, is an uncomfortable situation in which to be.