The government must act to prevent insurers being forced to either break the law or break customer promises post-Brexit, an influential group of MPs has urged.
Treasury Select Committee chair Nicky Morgan has written to chancellor Philip Hammond warning cash payouts for long-term insurance products such as pensions could be affected unless remedial action is put in place.
Hundreds of thousands of contracts sold into the EU from the UK – or vice versa – may be affected, Morgan warned. In the absence of any specific agreement on Brexit day, passporting will end and insurers will lose the legal authorisation to service contracts.
The letter calls on Hammond to clarify where the issue ranks in the government’s list of Brexit priorities, what ministers plan to do and whether a position paper on the issue will be published.
The move was welcomed by leading insurers and industry experts. Lloyd’s of London said the conundrum was a “critical issue” and called for “clarity”.
Huw Evans, director general, Association of British Insurers (ABI) said:
This is a shared challenge for the EU and UK and a vital issue for millions of our customers.
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If no action is taken prior to Brexit, UK insurers with no European passporting base would legally be voided.
Halting payments would see insurers renege on customer promises. Continuing to service contracts would be against the law as it currently stands, the ABI said.
Long-term contracts such as pensions, financial guarantees, director negligence policies and employer liability contracts would likely be worst hit.
“Without a resolution insurers will face a choice between breaking their promise to customers or risk breaking the law. It must not come to this,” said Evans.
Former pensions minister Steve Webb, now director of policy at Royal London, told City A.M. Morgan’s letter was “very welcome”.
A spokesperson for Lloyd’s added: “We all want to know that we will not be adversely affected when the UK leaves the European Union.”
Meanwhile, Tom McPhail, head of policy at Hargreaves Lansdown said:
Given the extent to which European regulation and legislation already sets the agenda for domestic UK regulation of financial services, it shouldn’t be too challenging to reach an accommodation whereby business can continue as usual.
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