Market access

Where is the customer located?

Intermediaries and insurers need to check whether their regulatory permissions allow them to place (and accept) any given risk.  It might be the case that following Brexit a UK intermediary is no longer permitted to perform distribution activities in respect of customers located in an EEA territory.

The Solvency II directive defines the location of a customer insofar as it applies to an EEA insurer wishing to exercise its freedom to provide services and rights of establishment in relation to other EEA territories.  Neither the Solvency II directive, nor the Insurance Distribution directive, establish uniform definitions relating to market access by third country insurers and intermediaries to individual EEA territories.

Whether, in respect of an EEA territory, a third country insurer is performing insurance business or whether a third country intermediary is performing insurance distribution activity is therefore a matter of local laws and regulations of that EEA territory.

The UK, for instance, applies a test of where the regulated activities are carried on and not one of where the client is based or where the risk is located.  It is therefore important that intermediaries and insurers clarify what is required by local law and the expectations of relevant national regulators.

Individual insurers are likely to have developed their own bespoke definitions and operating controls and processes around underwriting and accepting risks with customers located in other jurisdictions in order to avoid writing business which falls outside their regulatory permissions.  This might result in differences between different insurers. It is therefore important that a broker discusses with their capacity provider what the scope of their regulatory permissions might be.

Intermediaries and insurers need to check whether their regulatory permissions allow them to place (and accept) any given risk.  It might be the case that following Brexit a UK intermediary is no longer permitted to perform distribution activities in respect of customers who reside in an EEA territory.

The Solvency II directive defines the location of a commitment insofar as it applies to an EEA insurer wishing to exercise its freedom to provide services and rights of establishment in relation to other EEA territories.  Neither the Solvency II directive, nor the Insurance Distribution directive, establish uniform definitions relating to market access by third country insurers and intermediaries to individual EEA territories.

For the purpose of exercising passporting rights, life insurance contracts are located in the territory of the habitual residence of the policyholder.  This is also the approach in relation to non-life insurance contracts that do not relate to buildings or to buildings and their contents or to vehicles.  Therefore, if a policyholder’s habitual residence changes following the conclusion of the contract then it might be appropriate to consider whether the location of the life insurance contract also changes. 

EIOPA has issued recommendations to promote consistent approaches among EEA national insurance regulators on this matter as it relates to Brexit.  These recommendations are not legally binding. On 31 October 2019 EIOPA published the responses of the national competent authorities on its website whether they will comply with each of the recommendations or explain the reasons for not complying with those recommendations.

National supervisors responses to EIOPA recommendations

On 31 October 2019 EIOPA published responses from national competent authorities on its website whether they will comply with each of EIOPA’s recommendations or explain the reasons for not complying with those recommendations.  The EIOPA recommendations are referred to throughout this website and cover a number of different matters including distribution activities requiring registration, orderly run-off, changes to existing contracts, portfolio transfers, changes in the habitual residence or establishment of the policyholder and communications to policyholders.

Intermediaries should consider these responses carefully to ensure that their proposed post-Brexit structures and arrangements remain appropriate.

Recommendation 6 recommends that competent authorities take into account the habitual residence of a policyholder, or the place of establishment of a legal person at the time the life insurance contract was concluded.  The recommendation identifies that UK policyholders might have subsequently changed their habitual residence or place of establishment to an EEA Member.  In EIOPA’s view, the insurance contract was concluded in the UK and the UK insurance undertaking did not provide cross-border services for this contract.

Recommendation 6 does not apply to non-life insurance contracts that relate to buildings or to buildings and their contents or to vehicles.  However, competent authorities are expected to apply the approach outlined above to other non-life insurance contracts. 

While this recommendation is welcome, it is ultimately a matter for local laws and regulations of that EEA territory whether, a third country insurer is performing insurance business or whether a third country intermediary is performing insurance distribution activity in relation to that EEA territory.