The Bank of England has admitted to warning UK courts of a deluge of insurer applications ahead of Brexit, having kept it private amid fears over how policyholders might react.
Minutes from a November meeting of the Bank’s Financial Policy Committee (FPC) show that members were given “early estimates” around the number of policyholders that would be impacted if insurers lost permission to collect premiums and pay out claims on cross-border contracts after Brexit.
It is the latest revelation around Brexit preparations being made by both the UK Government and regulators as banks, asset managers and insurers prepare for the loss of passporting rights which currently grant cross-border access throughout the EU.
In light of the potential “risks”, the committee was told insurers were planning to either transfer contacts to new entities or gain new permissions for existing operations, a process that could take between 12 to 18 months.
“Given the volume of these applications was expected to be three to five times the normal level, there was a risk that transfers would not be completed in time,” the FPC said.
While the FPC and Prudential Regulation Authority tried to make sure company plans were as “robust as possible”, the Bank of England “had written to the High Court to alert them to the potential for increased applications”.
The Financial Policy Committee detailed previously redacted information about preparing the insurance industry for Brexit (PA)
With the help of the Treasury, the Bank said it was also “drawing up options to protect UK policyholders”, which in some cases required new laws or cooperation with the EU.
But all this information was redacted from the FPC’s record of its September meeting, when it said work was “under way, but not yet finalised”.
It feared the affect that uncertainty would have on insurance policyholders.
“The FPC had judged that additional disclosures at that stage were against the public interest as it could prompt policyholders to take costly and potentially unnecessary actions to safeguard the future continuity of their contracts.
“It had therefore decided…to defer publication of details of both the estimates and the work under way from the record of its Q3 meeting.”
But assurances from the Treasury paved the pay for public disclosure of those risks, having done “further” work and insisting it was “considering all options” around cross-border financial services contracts.
“In light of this commitment, the Committee judged that the risks of prompting unnecessary action by policyholders had reduced and agreed that the publication of its Q3 discussion on the risk of a discontinuity in insurance contracts could now be published,” the FPC’s minutes showed.
The insurance industry is just one sub-sector of the financial services industry hoping to safeguard cross-border business after Brexit.
Fears of lost access to the EU have prompted contingency plans from a number of firms including JPMorgan and Goldman Sachs, which are planning to spread staff across a number of European cities including Frankfurt.
Barclays, Legal & General and Bank of America have revealed plans to base EU-focused operations in Dublin after Brexit, while Luxembourg has gained commitments from the likes of US giant AIG, Northern Trust and insurers RSA and Hiscox.