May 2016
Up to 48,000 jobs would be put at risk if insurance companies chose to relocate in event of a Brexit, according to a report on the impact of the EU referendum on the insurance industry by Kennedys.
The international law firm partnered with think tank Cicero to conduct in-depth interviews with 20 senior industry executives to ascertain what a vote in or out would mean for their businesses.
The report found that in the event of a Brexit vote, insurance firms may begin to relocate from the UK within one to two years, with some evening suggesting that jobs could relocate within weeks.
“The uncertainty associated with a leave vote could provide a strong incentive to relocate business to other insurance hubs around the world, particularly in the London Market where the client base is global and the workforce is highly mobile,” the report said.
“It was considered that the combination of globalisation and digitisation is weakening the need to maintain a physical presence in London.”
In addition, a Brexit vote could become a major catalyst for M&A activity in the sector, as insurers looked to acquire or divest their EU business units.
“Firms which make use of passporting rights to do business across Europe had major concerns. Any inability to undertake cross-border activity as now, based on Freedom of Service provisions would cause businesses to redraw their corporate strategy and potentially undertake major corporate restructuring,” the report explained.
Respondents also cited concerns about obtaining the right sort of talent in the event of a vote to leave.
The UK government may be tempted to limit the free movement of EU citizens, which would hamper insurers’ efforts to attract and retain talent from around Europe, the report found.
However, those surveyed felt it would be impossible for Britain to cherry pick which freedoms would apply under any free-trade agreement negotiated post-Brexit. Most believed it would be very difficult, if not impossible, for the UK to negotiate an exit which maintained market access for goods, services and capital while limiting free movement of people between the UK and the rest of the EU.
While almost all of the executives Kennedys spoke to felt that the costs of an EU exit would outweigh any benefits, many also cited concerns which would arise out of a vote to remain.
Many were worried about the UK’s ability to compete for non-EU talent, for example, as the only way to reduce net migration would be to introduce tighter restrictions for non-EU migrants. This could have a negative impact on the London’s insurance sector’s global competitiveness.
Others suggested that a vote to leave could have the benefit of enabling the UK to remove the Gender Discrimination Directive, which requires insurers to change their pricing policies to treat individual male and female customers equally in terms of premiums and benefits.
In addition, while the EU passport – which allows businesses to offer services across all 28 member states in the bloc – has played a positive role in contributing to the attractiveness of the UK as a place to do business, insurers are not making widespread use of the EU passport to market their products into other EU Member States.
This is because despite the introduction of the EU passport and other directives, such as the Insurance Mediation Directive, the Motor Insurance Directive and the E-commerce Directive, the EU insurance market remains fragmented.
The incomplete nature of the retail single market reduces the benefits of the single market, and thereby diminishes the potential downsides of leaving it, the report said.
Kennedys senior partner Nick Thomas said that it was important to recognise that whichever way the UK decided to vote, neither outcome would be a vote for the status quo.
“In the event of a Leave vote, the UK will need to devote energy and resource to reframing its trading relationships with the EU and the rest of the world,” he said.
“The prospect of a Remain vote also raises the prospect of change; the sector will be faced with further EU regulations spanning capital markets (and insurance solvency requirements), data protection and cyber reporting; as well as new rules on the sale of insurance policies and broader efforts to complete the single market for retail financial services.
“Whichever way the UK votes, insurers should be ready for change and ready to adapt.”
