Brexit approaching an endgame – but only of chapter one
By David Worsfold

Brexit has broken the British political system. The absence of a written constitution has meant that almost daily conventions that have been respected for decades – even centuries – have been tossed aside, especially by the new Prime Minister Boris Johnson.

His focus is exclusively on forcing the United Kingdom out of the European Union on 31 October whatever the terms, whatever the costs and regardless of the determination of Parliament to stop him. No-one knows what the outcome will be. Predictions are pointless. Learned analysis is rendered useless almost as soon as it is delivered. The country becomes daily more deeply divided with no-one offering any prospect of healing, let alone creating a single sense of national purpose again.

Parliament passed a law prohibiting the UK from leaving the EU on 31 October with a deal, just hours before Prime Minister Johnson ordered its suspension for five weeks from 9 September. However, Parliament offered no clear definition of what might constitute a “deal” and Prime Minister Johnson positioned himself to do everything he can to ignore Parliament short of blatantly breaking the law.

Meanwhile, businesses are in despair. The government tells them to prepare for Brexit but it cannot tell them what type of Brexit, when or how it will impact them.

Whatever the outcome of Brexit, decisions are being made that will change the UK forever.

The three years of intense focus on how the UK will leave the EU have diverted attention away from the sobering reality that the current phase of negotiations only mark the first stage of a process that could dominate most of the next decade. This is just the close of chapter one. There are many more chapters still to be written.

Only once the UK has left the EU can the serious negotiations about the future trading relationship with the EU and the rest of the world begin. If the furore surrounding the basis on which the UK’s membership of the EU should end has left businesses uncertain, nervous and often confused, the prospect of politicians trying to negotiate detailed trade deals sector-by-sector and country-by-country is a chilling one.

Business, including the financial services sector, has lost patience with politicians and with good reason. The widespread ignorance across the political spectrum about the impact Brexit could have has left firms with little option but to prepare for an abrupt, brutal and possibly chaotic No Deal exit, while hoping for something a little softer. For insurers and brokers, this has meant making decisions about which clients and contracts need to be serviced from within the EU and where to base the operations that service that business.

Dublin has been one of the most popular choices but the local economy there is now over-heating with property prices rising rapidly and school places under pressure. Luxembourg has been another popular choice for insurers, while Lloyd’s decision to pick Brussels as its new EU base has attracted some London market firms to follow it there.

With other locations such as Paris, Frankfurt and Malta still working to attract firms, the final picture has still to emerge but there hasn’t been a clear winner which shows that London cannot be easily replaced.

Much of the political debate in the UK has surrounded the customs union and providing a cushioned exit from that but it only covers trade in goods – just 15% of the UK’s gross domestic product ­– and excludes financial services.

The single market, often referred to as the internal market, provides the basis for insurers and brokers to trade freely throughout the EU and the European Economic Area using what is often referred to as passporting. Hope is fading that any transitional phasing out of passporting will survive the current Brexit mayhem.

Whether or not there is a withdrawal agreement, national regulators do have scope to make things easier and the UK has been leading the way on this front creating regulations to allow EU firms to continue to trade in the UK after Brexit.

Some EU member states have proposed or implemented transitional arrangements that would help UK firms. However, many of these are short term and are limited to the running off of existing insurance policies. They may help with the issue of contract continuity, at least for a limited period, but for all other purposes insurers and brokers are now looking at a regulatory cliff edge.

As well as major international insurance business, there are several personal lines insurances that will be adversely affected by Brexit, especially travel with around 60 percent of UK travel insurance cover passported in from the EU. UK drivers travelling to the continent will probably have to obtain a Green Card – the pre-EU regime – to show their insurance covers them for driving in the EU, while the European Health Insurance Card could go, meaning Brits travelling to Europe will need extended health insurance cover.

These details – and many more – are being completely overlooked as the politicians lock horns in a battle that has rocked British politics to the core, split both major parties, especially the governing Conservative Party, and brought closer the prospect that the United Kingdom will break up with Scotland seeking independence.

There are many chapters still to be written. They will not be for the faint-hearted or those who seek stability, unity and predictability in politics in the next decade.

Subscribe to the Insurance Research Letter here. Each issue has topical 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 our popular Back Page with all sorts of non-insurance fun and interesting subjects.