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Important Considerations

Brexit – Implications For Insurance Buyers Frequently Asked Questions

The United Kingdom (UK) formally left the European Union (EU) on 31 January 2020 and entered into a transition period as agreed as part of the Withdrawal Agreement between the UK and the EU. The transition period is due to end on 31 December 2020, but as negotiations unfold many important issues remain unclear.

We have collated some questions that our clients are most frequently asking about the implications of Brexit for insurance buyers, and for the insurance market more broadly, and answers to them based on the current status of negotiations between the UK and EU.

Brexit impact on insurance

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Frequently Asked Questions

The response from insurers below are correct at the time of publication but, given the nature of the emerging trends, may be subject to change.

The default position post-Brexit and following the end of the transition period is that the UK will be treated as a third country by European Economic Area (EEA) member states. Similarly, the UK will treat EEA member states and EEA firms in the same way as it treats other third country states and firms.

A number of UK insurers have undertaken Part VII transfers under the 2000 Financial Services and Markets Act so that they can continue to settle claims in the EEA post-Brexit and the end of the transition period. Part VII of the Act sets out the statutory mechanism allowing (re)insurers to transfer portfolios of (re)insurance business from one entity to another, subject to court approval. Where such EEA liabilities are transferred from a UK entity to an EEA licensed entity, all future EEA liabilities arising in relation to existing contracts of (re)insurance, for example payment of claims, will be performed by the EEA licensed entity. You can read more about Part VII transfers in our previous briefing.

In addition, a number of EEA Member States previously considered introducing “emergency” Brexit legislation allowing for the run-off of existing contracts, under which a UK domiciled insurer would be able to pay a claim to an EEA policyholder without obtaining an EEA authorisation. However, such legislation was intended to apply in he event of a “no-deal, no-transition” Brexit. As the UK left the EU under the terms of the Withdrawal Agreement, whether UK based insurers can now run-off existing contracts, and legally pay claims to EEA-based policyholders, will depend on the precise terms of any such legislation in place in each EEA Member State.

Yes. They are taking a little longer than normal to respond but have are operational and able to support us.

The principal impact of Brexit on insurance markets is that UK insurers will lose the passporting rights that they currently hold. Passporting rights allow UK insurers to carry on business in another EEA state either through a branch established in that state (Freedom of Establishment basis) or on a Freedom of Services (FoS) basis.

Under FoS, business services can be provided across national borders within the EEA on the basis of a single authorisation obtained in the UK. For insurance contracts, this means that a single policy can be underwritten in any one EEA Member State covering exposures in multiple EEA jurisdictions.

UK insurers would only be able to issue EEA-wide policies after Brexit and after the end of the transitional period) if any future trade agreement between the EU and the UK were to allow for it, perhaps through mutual recognition of regulatory regimes or the reintroduction of passporting rights.

As things currently stand, in the absence of mutual recognition, and without access to EEA insurance markets for UK insurers (unless they obtain an authorisation in the relevant EEA state(s)), separate policies will have to be issued to cover UK risks and EEA risks, with the EEA policy being issued by an EEA insurer.

Alternatively, a single policy could be issued and be dual stamped by an EEA insurer in respect of the EEA risk and by a UK insurer in respect of the UK risk. This approach has been adopted by Lloyd’s of London on risks covering both EEA and non-EEA exposures, where the Lloyd’s of London syndicate stamp is used to evidence the capacity for the non-EEA exposures, and the new Lloyd’s Brussel’s stamp is used to evidence the capacity for the EEA exposures.

The factors that determine the location of the risk vary depending on the nature of the risk, for example:
The location of immovable property, such as buildings or other infrastructure, is usually the territory in which the property is situated. In most territories, the risk location for movable property is where the property is normally situated. However, for regulatory purposes, EEA member states view the risk location of movable
property as the territory in which the insured is habitually resident or established.
For aircraft, ships, and motor vehicles, the risk location may be determined by where the vehicle is located, or where it is registered, or where the insured is resident or established.
General liability and financial loss
For liability classes, the risk location is the territory in which the insured is resident or established. The territory in which an insured peril or event occurs to trigger a claim usually does not, by itself, create a risk location.
If the contract is reinsurance, the risk location is determined by the location of the reinsured(s) and not the location of the original insured(s).
Global/multi-national programmes.
For all classes, policyholders will need to continue to insure assets and liabilities for EEA risks on the basis outlined in 1) and 2) above. FoS policies issued by UK insurers for EEA risks or, subject to the Temporary Permissions Regime (TPR – see question 5 below), from EEA insurers for UK risks will no longer be permitted; your insurer will need to have made arrangements to provide coverage for a multi territory programme through an EEA-based entity – this could be through a dual-stamp approach.
compulsory insurances will continue as a requirement; the basis of broker service to support arrangement and delivery of those insurances may require some changes to be made.

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