IRL Preview – February 2020


Angola: Currency Devaluation and VAT Introduced
The IMF has consistently expressed reservations about opening the capital accounts of countries that do not have the architecture or banking systems of more well-developed financial markets. It is therefore highly probable that the IMF supports Angolan policymakers’ stance in this regard. As a result, we are optimistic that Angola is likely to unlock the additional USD 4 billion in IMF loans in order to help support its economic restructuring. Our hope (fingers crossed!) is that the current devaluation is necessary for the long-term survival, stabilization and strengthening of both the Angolan economy and its currency. Angola is heavily reliant on imports for its economic survival. Learn more about the devaluation as well the new VAT that will be included at 14 percent on all insurance invoices on page 12

Kenya: President Signs New Insurance Bill
President Kenyatta signed a new Insurance Bill into law. The Insurance (Amendment) Act 2019 introduces provisions for the protection of policyholders where an insurer is in distress and the assets are put in statutory management. The new law empowers the Insurance regulatory Authority to prescribe the manner of submission of various kinds of returns, and provides for a penalty for late submission, which shall be payable into the Policyholders’ Compensation Fund. Learn more on page 12

The Future of Underwriting in Commercial P&C Insurance in Latin America
Read this interview with two heavyweights in the Latin American insurance world on page 13. Learn how they answer these three questions: What steps should be taken to improve underwriting decisions and process?; Which risks in terms of impact are increasing on 2020?; and How to avoid the potential risk that the technology disruption may bring?

Insurance Trends to Watch in 2020
As promised last month, here’s a look at what can be expected in 2020 written by two prominent insurance attorneys. “With a new year comes a new set of trends for CEOs, CFOs, general counsels, risk management professionals, and brokers to watch when thinking about the insurance market. This article highlights the following five of those key trends: coverage for liabilities arising out of statutory privacy regimes; new insurance arbitration rules; repeat appointments in insurance disputes; the impact of increases in securities suit filings and event-driven litigation on the D&O market, and; an increase in employment practices liability claims.” Page 14

St. John’s University Names School of Risk Management, Insurance and Actuarial Science in Honor of Maurice R. Greenberg
Read a tribute to one of the industry’s greatest leaders and innovators on page 16

Gibraltar: The Future for MGAs?
While around 27 percent of the UK motor risks are underwritten by Gibraltar insurers, the MGA market has not seen much growth in recent years. With the recent proposed legislative changes of the intermediated market in Gibraltar being announced, could a new dawn be rising which will be exciting for the Gibraltar insurance market and in particular the MGA market? Learn more on page 17

Never plain sailing for the marine insurance sector
Learn about the current changes and challenges – but also the opportunities – facing the marine sector can broadly be split into three themes: the cyclical state of our business, the structural changes affecting the sector and the impact the external world is having. Page 18

All set for Brexit and a journey into the unknown

All set for Brexit and a journey into the unknown

All set for Brexit and a journey into the unknown
By David Worsfold, Worsfold Media Services Ltd

The sweeping victory for Boris Johnson’s Conservatives in the UK’s General Election last month has moved the fractious, divisive and seemingly endless debate about Brexit into a new phase. The UK’s formal departure from the European Union at the end of January is now certain. However, that is only the end of the beginning as the UK and the EU are now embarking on a journey into the unknown.

They will be hurled into 11 months of frantic negotiations to hammer out a trade deal by the end of 2020. Many experts do not believe it will be possible to achieve much in that ludicrously tight timescale. Senior European Union officials almost instantly started talking about extending the transition period for up to another two years. Prime Minister Johnson’s response was to enshrine that final departure date into law, leaving almost no room for manoeuvre.

There will be plenty of posturing, proposals and counter-proposals over the next few months. The likely outcome is a very broad heads of agreement type deal will be signed off in time as neither the EU nor the UK will want to admit failure and will be keen to avoid a finger-pointing blame game. This very basic agreement is unlikely to have much substance and will leave more questions unanswered than it will ever come near to answering. This means the UK could still be facing a pretty hard Brexit at the end of the year. This could be very disruptive for the insurance industry.

It will impact insurance in many ways, not least because it will be likely that most trade with the EU will have to be conducted on World Trade Organisation terms from the end of this year while more detailed sector-by-sector deals are slowly put in place. This will also be the case for the trade deals with the 50+ countries and trading blocs that the UK currently has settled trading arrangements with by virtue of its membership of the EU. This will impact the UK’s trading relationship with the USA, something the UK government has given a high priority to settling quickly.

WTO terms have yawning gaps when it comes to financial services so without some softening in the form of a transitional period of mutual recognition between the EU and UK the next phase of the Brexit journey could be a very bumpy, uncertain ride.

Transitional arrangements for the insurance sector could be hard to achieve as few national regulators in Europe have offered anything meaningful so far. This is definitely not helped by the UK insurance market being divided on what sort of future relationship it wants with the EU.

The Association of British Insurers talks about not being a rule-taker. This aligns very neatly with the UK Government agenda of seeking flexibility to deviate from EU rules. It is an anathema to the EU.

Purely domestic insurers and brokers would welcome some relaxation of a range of rules that are part of EU membership, despite many of them being shaped by the UK. They certainly do not want additional rules, under Solvency II for instance, imposed without having any say.

The international insurers and brokers, including the big American groups, want alignment. They want to maintain seamless relationships with clients across borders and know this requires maintaining alignment with the EU’s rules.

Almost all the major insurers and brokers with significant cross-border business in Europe have already spent millions on preparing for the potential disruption of partial no deal Brexit by re-domiciling business elsewhere within the EU.

This worse case contingency planning could prove invaluable as insurance and financial services are going to be at the heart of the battle over future trade deals with the EU. Envious eyes are being cast towards London’s dominance of financial markets and countries are queuing up to make demands that suit their national interests. The UK’s lucrative financial services sector is already on the table as a major bargaining chip. For instance, Ireland has said it will deny UK financial firms access to its markets if its fishing fleets are not given access to UK waters. A divided insurance industry is going to find it very hard to persuade the UK government to defend its interests if the negotiations turn nasty.

The Conservative victory has also removed one uncertainty – the threat of Scottish independence. The Scottish National Party, which advocates independence, did well in the election, winning over 80 percent of the seats in Scotland. This, the SNP unsurprisingly argues, represents a huge mandate for a second referendum on Scottish independence, with the sub-text that it would be likely to produce a vote for independence.

It is extremely unlikely that the Johnson government will grant the Scottish Parliament the powers required to hold a referendum. The Prime Minister made it clear during the campaign that he was implacably opposed to this.

Even if a referendum was conceded, Scotland is still most likely to vote to remain part of the United Kingdom.

The UK’s First-Past-the-Post electoral system distorts the results, especially in Scotland where there are many three-way marginal seats that can be won with just one-third of the vote. This means the SNP won many more seats than its share of the vote justified. The pro-independence vote in the 2014 independence referendum was 45%. The SNP vote in the General Election was 45 percent. It suggests that support for independence hasn’t moved in five years.

Many in the UK, including those who voted to remain in the EU, have breathed a sigh of relief that the bitter, rancorous debate over how to respond to the 2016 Brexit referendum vote appears to be over. Mixed in with that sense of relief is an unhealthy portion of naivety. The hammering out of over fifty trade deals will be a decade long affair and there will be casualties along the way with the insurance industry among the most vulnerable sectors.

Brexit via the Backdoor

Brexit via the Backdoor

Following the demise of England’s worst prime minister in July 2019, the country was confronted with a problem: Parliament had become more powerful than the Government. The Conservatives, with a minority in the House of Commons, had to rely on a reluctant Northern Irish Democratic Unionist Party for support. Who would, or rather, could, lead the government out of the Brexit mess?

The Referendum in 2016 saw a small majority of registered voters in the United Kingdom wanting to the leave the European Union. Of the four parts of the UK, three of them (Northern Ireland, Scotland and Wales) had voted Remain. The Conservative party chose to follow the wishes of all of the people who voted but there was no leader who could get the deal done.

Whatever was agreed between the Conservatives and the EU negotiators in Brussels was turned down by Parliament. Boris Johnson, who always wanted the job of Prime Minister finally got it and after promising not to close down Parliament (proroguing it in Parliamentary parlance), he promptly prorogued it – in effect taking away its ability to vote down any of his plans.

He also said that Britain would leave the EU on the 31st October – or he would die in a ditch. Contrary to his promise, he did not do that.

The deal Mrs. May had agreed with Brussels contained elements of the European Single Market and Customs Union. Parliament voted this down three times, mainly because Britain would have had no say in how the rules of the single market and customs union were made and enforced. Boris said, “right, I’ll lead the way out of the single market and customs union. But I promise that Northern Ireland, as part of the UK, will not be part of a separate deal from England, Scotland and Wales.” That meant that Northern Ireland, unlike the rest of the Emerald Isle, would also say goodbye to the EU’s single market and customs union.

Hey, wait a minute – what about that border between the Republic of Ireland and the UK province of Northern Ireland which, after the Good Friday Agreement, had led to the end of the Troubles, ensuring peace, stability and the ability to send goods and services unfettered in both directions across what had become nothing more than a line on a map?

True to form, Boris ignored his pledges and proposed separate arrangements for the province and put a border down the Irish Sea, between Northern Ireland and mainland UK.

Is there no end to all these promises being broken? It is said that “the road to Hell is paved with good intentions” and that Hell is Brexit.

Ask any Brexiteer what they want from Brexit and you will get a different answer. Here are a few examples of where people did not understand Brexit:

“We’ll take control of our borders!” Actually the Border Agency of HM Customs and Excise has never lost its right to block anyone, EU citizens or not, from entering this country.

“We’ll get our sovereignty back!” The EU and every single country in the world recognise Queen Elizabeth as head of state and Parliament as the ultimate law-maker in the country. EU law and Directives must be agreed by the UK parliament before they become British Law. Such EU laws and directives were devised by elected officials from all EU countries, including the UK and where such laws or directives would not have been in the interests of the UK, those elected officials have the right and duty to oppose and reject them.

“The European Court of Justice will no longer tell our courts what to do!” Their Excellencies, sitting in Luxembourg, are not going to convict a drunken driver from Nottingham for causing a car crash after he left the local boozer down the road; that is what a Magistrate does in England – and that applies to the other 27 member states, too.

The role of The Court of Justice of the European Union (CJEU), officially just the Court of Justice, is the supreme court of the European Union in matters of European Union law. The court is divided into two: the Court of Justice (with one Judge from each EU member) and the General Court (with two Judges from each EU country).

The Court of Justice is tasked with interpreting EU law and ensuring its equal application across all EU member states.

It is still up to the national court in each EU member country to decide issues of its own nation’s laws. The European Commission can also take a case against an EU state to the General Court. These cases ask the court to decide whether the member state is in breach of its obligations to the EU. People must remember that France has the Napoleonic Code and Britain has Case Law and Common Law and so on and the CJEU may not override that. If a new EU directive was voted into British law by Parliament but it was not upheld in this country, then it is up to judges in Britain to apply the law as Parliament had directed.

“We can now kick the French fishermen out of our waters!” Some people worry about the Common Fisheries Policy (CFP) – the fisheries policy of the EU. It sets quotas for which member states are allowed to catch each type of fish, as well as encouraging the fishing industry by various market interventions.

As a general rule, fishing vessels registered in the EU fishing fleet register have equal access to all the EU waters and resources which are managed under the CFP. Access to fisheries is normally authorised through a fishing licence. Few people realise that more British fishing vessels operate in other EU members’ waters than EU fishing boats in UK waters. What they also do not realise, for example, is that a lot of fish sold in France is caught by British vessels operating in both French and British waters – not a bad deal for British fishermen.

The CFP was designed by elected officials from all EU states – including British officials. If people in this country object to the CFP, all they need to do, is talk to their elected representatives.

Mr. Johnson had promised to get the UK out of the EU on the 31st October – deal or no deal. The UK did not leave the EU on that date; there is a new flexible deadline of the 31st January 2020. Because the weak government cannot get Parliament to agree to its plans, prime minister Boris Johnson has now called an election after which he hopes to have the strong majority he needs for Parliament to agree to the plans which up till now have been voted down.

The main opposition parties: Labour, Liberal Democrats, Scottish National Party to name a few are now against Brexit. The question therefore arises: “who do I vote for, Labour who I dislike because they will nationalise as many industries as possible, mis-manage them and cause the country to take a hit of £70 million by 2029, but they will support a new referendum which I hope will lead to a Remain victory or do I vote Conservative because I have always done so and I must keep Labour out at all costs but realise that Boris will disallow a second referendum because he is scared Remain would win but voting Conservative means Brexit will happen and the country will take a hit of £70 billion by 2029?”

The only way for the UK to avoid leaving the EU is to hold a second referendum – and keeping other issues of the table – which a large number of people believe would support Remain. Boris wants to avoid that. Much of the election discussions relate to other issues than Brexit and they have become toxic as the campaign has become the dirtiest ever. Brexit is an issue but it does not appear to be the main issue.

Boris Johnson’s party will lead the country down the garden path with platitudes and promises for helping the ailing National Health Service, putting money into the cash-strapped education system and reinforcing the fight against crime and terrorism but if they win, Boris will say “you authorised me to get Brexit done” – via the back-door. (By George Worsley)

Subscribe to the Insurance Research Letter here. Each issue has articles written by experts that you won’t read anywhere else. Stay current with major developments with our Global Briefs; monthly Synopsis of insurer and broker news; and the popular BackPage with a variety fun subjects.

IRL Preview – December 2019

IRL Preview – December 2019

Highlights, December 2019

Three Key Insurance Trends that will Shape the Future of the South American Insurance Market

Disruption through new technologies is a key driver of change in the insurance industry and this in leading to better risk identification and mitigation measures, with opportunities of new methods of service provision and data collection that can lead to efficiency gains in a rapidly changing world. Learn how experts have worked to identify and analyse three key insurance topics that will re-shape the future of the insurance industry in South America, as we know it on page 11

Reduced to Numbers – Have We Lost the Art in Claims Management

Scoring is insurance tech “du jour.” An array of scoring companies appeared at InsureTech this year in Las Vegas, promising to score all human interactions with a number to indicate next steps. So of course, with an eye toward quantifying everything (which is a programmer’s dream) we took a closer look on page 12

Insurance: Destined for change by way of technology

Are you willing to embrace change? Most people say “yes,” but do they really mean it? In the insurance industry we may not have a choice. It seems like new technology is being created on a daily basis, and investors are hungry to support the products that are likely to change the way we do business. Page 13

Getting Privacy Right: A Board Level Concern

The range of issues confronting today’s business leaders is expanding at breakneck speed. Emerging concerns, such as geopolitical, governance, and climate risks, can have significant impacts on strategic planning, business operations, and revenue. Increased interconnectivity and disruptive technologies create opportunities, but frequently have unforeseen consequences. In addition to adverse financial and operational impacts, a single misstep in managing these complex areas can damage corporate reputations almost overnight. Read more on page 13

Hard, soft or no Brexit? Lloyd’s strategies in an uncertain business environment

Since the 2016 Brexit referendum, we have worked tirelessly to ensure that the market’s insurance and reinsurance customers can continue to access Lloyd’s specialist policies and strong financial security regardless of the ongoing political Brexit negotiations. In November 2018 we launched Lloyd’s Brussels, a fully authorized Solvency II insurer with approval to write business from the European Economic Area. Page 14

Brexit via the Backdoor

Following the demise of England’s worst prime minister in July 2019, the country was confronted with a problem: Parliament had become more powerful than the Government. The Conservatives, with a minority in the House of Commons, had to rely on a reluctant Northern Irish Democratic Unionist Party for support. Who would, or rather, could, lead the government out of the Brexit mess? Read about the current state of play on page 14

Insurers: Riding the wave of transformation

There is a new wave in insurance which is almost as dramatic as the digital era that exploded in the nineties. Blockchain and emerging technologies are set to transform the digital landscape, and should not be ignored by insurers or their agents. If these emerging technologies are not embraced, we may see business models become redundant as they become unable to manage their cost base or keep up with the changing demands from consumers. Page 16

Subscribe to the Insurance Research Letter here. Each issue features articles written by experts that you won’t read elsewhere. Stay current with major developments with Global Briefs; monthly Synopsis of insurer and broker news; and the popular BackPage with a variety fun and interesting subjects.