How Brexit Affects Your Financial and Professional Insurance Coverage
You may not feel it yet, but the United Kingdom’s exit from the European Union (EU) will likely impact how you buy directors and officers (D&O) liability and other financial and professional lines of insurance.
Insurance Market Implications
The UK’s membership in the EU established London insurers as key players within the global financial services and insurance industry because EU members have the ability to “passport” or freely move goods, services, and people throughout the Eurozone.
Membership in the EU has provided London insurers a significant compliance edge over other insurance hubs. For example, most global businesses have traditionally placed their Freedom of Services (FoS) policies out of London because they can use a single insurance contract to cover all EU countries.
The UK’s exit from the EU — widely known as Brexit — will likely change things. Going forward, global insurers will likely deploy their people and use financial assets and other capital differently. Post-Brexit, insurers may devote more resources to Continental Europe in order to continue to serve European and global clients.
Financial and Professional Coverage
Although most financial and professional policies are underwritten for one-year terms, claims can take years to resolve. So insurers may need to continue to serve clients long after their policies have expired — including, potentially, after the UK has left the EU.
Some multi-year claims may occur in other EU countries where non-admitted insurance is not allowed. If the UK is no longer a party to the Freedom of Services Convention — which makes a contract from any EU country legal, binding, and enforceable in all others — local payment for a loss involving a director or officer may be in jeopardy. Marsh’s Brexit Steering Committee will monitor the UK’s exit process in anticipation of any potential advocacy work during negotiations with the EU.
If your business has operations in the UK, keep thinking about the potential implications of Brexit. For example:
- How will you deploy future capital and investments in the UK and Europe?
- How and where will you hire and retain talent?
- How are you planning to serve clients with operations in the UK and help them grow their businesses?
Make sure to review the strength and breadth of your financial and professional insurers, including those in the UK. And confirm that your insurers have separate licenses in the EU, which would allow them to write alternative coverage that can supplement a UK FoS policy with local underwriters.
The Brexit vote is a reminder that risk management is continually changing. Businesses can work with their insurance advisors to anticipate the risks around the corner and understand how global insurance markets may be affected by them.