by Benno Reischel, Head of Europe, Lloyd’s

Two years ago, before the Brexit referendum, only 25% of European risk managers thought their firms would be ‘severely affected’ by the UK leaving the EU (1). 

How times have changed. Brexit is now forefront of businesses’ concerns, exacerbated by the lack of clarity on the type of separation deal the UK Government is able to – or wants to – strike.

With just nine months until the UK’s departure from the EU on 29 March 2019, risk managers ought to be planning now for the switch over.

That said, it is worth noting the transition deal, agreed in principle in March this year, will extend the adjustment period from 29 March 2019 to 31 December 2020. This deal – if ratified – should uphold current freedom of movement rules, maintain existing EU trading access and enable the UK to negotiate, sign and ratify its own trade deals during the transition period (2). 

Details of the deal could change, so it is important to check the status of regulations regularly. And risk managers should not use it as an excuse to delay action on Brexit.

Issues for risk managers

What issues should risk managers be aware of and taking action on in relation to Brexit?

The ongoing uncertainty means risk managers need to be flexible, ready to change at short notice, as well as plan for the long-term. If company boards are not engaging with Brexit, risk managers need to take the initiative and make sure it becomes a priority.

Brexit will affect almost all areas of company operations including sales, regulation, corporate governance, legal, technology and staffing/HR. The latter is a particular concern as curtailing the free movement of people within the EU could reduce the talent pool and make it harder for companies to fill vacant positions.

If a firm has a captive, it is important to review its portfolio by geography of premiums and risk location, and consider whether to:

• Buy insurance coverage from locally licenced insurers

• Set up a subsidiary, branch, or presence in the UK/EU territory

• Re-domicile the captive

A timely review of the firm’s insurance programmes and understanding the profile of exposures well in advance of renewals will avoid last-minute surprises. This information can form the basis of a well-formulated risk mitigation strategy.

Brexit risk assessment

Part of this work includes carrying out a thorough risk assessment on Brexit. These are some of the key questions risk managers working in UK companies transacting business in Europe, and European companies transacting business in the UK, need to ask:

• What is the firm’s exposure to:

  • Nationality of employees?

  • Supply chains – including currency risk, regulatory standards, customs duties and other taxes?

  • Customers and markets?

• How is the business model affected by Brexit? How would leaving the single market and being part of a less favourable free trade agreement impact the business?

  • Is it worth opening a European or UK subsidiary?

  • Which legal and regulatory changes will affect the business?

  • How might changes to the status of European and UK banks and insurers impact the business?

• How does IT and data protection impact the business?

  • Through cloud services?

  • How will the company remain compliant with EU Data Directives?

The answers to these may not be clear yet but risk managers must try to identify the implications of Brexit in each area, and work collaboratively with supply chain partners and insurers to mitigate key risks.

Be prepared

Preparation is vital. By conducting a thorough risk assessment companies will be well prepared to navigate the many challenges ahead.

Risk managers also need to confirm that the insurers they currently use are EU compliant, whether they are accessing them through London-based brokers or through overseas offices.

We know one of the major concerns for risk managers is the fate of existing policies written in the UK and across the EU after Brexit. European regulators must agree on how these policies will be handled.

Transferring these contracts to new entities would be an unnecessary expense for both insurers and insureds, and would not benefit policyholders. With an estimated six million UK policyholders and 30 million more across the rest of the EU likely to be affected, this is a critical issue that needs resolving urgently.

Brexit poses a number of challenges for businesses but also represents an opportunity for risk managers to get on top of the issue, raise their profile within their companies and make sure their business can thrive -whatever the post Brexit business environment.

Lloyd’s has opened an insurance company in Brussels to ensure it can continue to underwrite risks from the European Economic Area from 1 January 2019.

Benno Reischel

Head of Europe, Lloyd’s