Market access

Where is the risk located?

General Explanation

UK intermediaries
It would be prudent for intermediaries to check whether their regulatory permissions allow them to place any given risk.  It might be the case that following the end of the transition period, a UK intermediary is no longer permitted to perform distribution activities in respect of risks located in an EEA territory.

The Solvency II Directive defines the location of risk 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 (IDD), establish uniform definitions relating to market access by third country intermediaries to individual EEA territories.

Whether a third country intermediary (as UK intermediaries will be classified by the EU) is performing insurance distribution activity in an EEA state 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. This may not be the approach adopted in one or more EEA states.

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 operating controls around underwriting and accepting risks 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 intermediaries discuss the matter with their capacity providers. For example, Lloyd’s of London provides guidance to brokers on location of risk on its website. For more information on Lloyd’s approach to Brexit, please visit the Lloyd’s Brussels website.

EEA insurers
The definitions around location of risk set out in Solvency II will continue to apply to EEA insurers when accepting risks located in a member state different the EEA insurer’s establishment.

For the purposes of exercising passporting rights the location of risk is defined as

  • in relation to buildings or buildings and their contents (insofar as the contents and buildings are covered by the same insurance policy): the country in which the property is situated;
  • in relation to vehicles of any type: the country of registration;
  • in relation to travel policies with a duration of four months or less: the country in which the policyholder took out the insurance policy
  • in all other cases, the location of the risk would be the country where the policyholder habitually resides (in the case of a natural person) or where their establishment is situated (in the case of a legal person).

To avoid the additional burden and complexity around managing multiple authorisations across a number of jurisdictions, a number of UK insurance groups have established authorised EEA insurance subsidiaries in order to obtain passporting rights for that subsidiary, which will be managing those policies with an EEA element, going forward.

UK intermediaries working with UK insurers
The end of the transition period

As can be seen above, in relation to buildings and buildings and their contents (insofar as contents and building are covered by the same insurance policy), the location of the risk will be the location in which the property is situated.

Following the end of the transition period, a UK intermediary will be subject to the local laws and the expectations of relevant national regulators relating to market access by third country intermediaries to that EEA territory.

Example:
A UK citizen owns a property in France for which they seek an insurance policy underwritten by a UK insurer and arranged by a UK intermediary.  Following the end of the transition period on 31 December 2020, it is necessary for UK intermediaries to clarify what is required by local (French) laws and regulations in relation to insuring property located in France.

UK intermediaries working with EEA insurers and EEA intermediaries
It is prudent that UK intermediaries consider whether they can continue to place EEA risks and/or EEA policyholders with EEA insurers in future.  EEA insurers (and EEA intermediaries) are required to use the insurance distribution services of only EEA registered intermediaries.

In recommendation 9, of its ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union’, the European Insurance and Occupational Pensions Authority (EIOPA) has recommended that UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal are established and registered in the EU27 in line with the relevant provisions of the IDD.  It also stated that all intermediaries carrying out distribution activities which target EU27 policyholders and EU27 risks fall under the scope of the IDD. This is being widely interpreted to mean that a UK customer with an EU risk (eg a holiday home in the EU) can be intermediated by a UK intermediary (though as it is an EU risk it must be insured by an EU insurer).

It is important that intermediaries clarify what is required by local law and the expectations of relevant national regulators

BIBA is unable to give specific advice about specific EU States’ application of recommendation 9

As can be seen above, in relation to vehicles of any type, the location of the risk will be the country of the vehicle’s registration.

Following the end of the transition period, a UK intermediary will be subject to the local laws and the expectations of relevant national regulators relating to market access by third country intermediaries to that EEA territory.

Please also refer to our guidance on Green cards when issuing motor insurance policies in relation to vehicles which will be driven outside the UK.

Example:
A UK citizen has insured their yacht (which is registered in Italy) under a policy underwritten by a UK insurer and arranged by a UK intermediary.  Following the end of the transition period, it is important for UK intermediaries and UK insurers to clarify what is required by local (Italian) laws and regulations in relation to vessels registered in Italy.

As can be seen above, where insurance does not relate to buildings or vehicles, the location of the risk will be the location of the policyholder’s establishment to which the contract relates where the policyholder is a legal person.

Following the end of the transition period, a UK intermediary will be subject to the local law and the expectations of relevant national regulators relating to market access by third country insurers and intermediaries to that EEA territory.

Example:

A Greek company has purchased employee liability insurance underwritten by a UK insurer and arranged by a UK intermediary.  Following the end of the transition period, it is important for UK intermediaries to clarify what is required by local (Greek) laws and regulations in relation to companies established in Greece.

It would also be appropriate for UK intermediaries to confirm the scope of coverage of the insurance policy with capacity providers including whether the policy also covers other group entities established in the EEA overseas and employees who are working overseas as these might be impacted by the end of the transition period.

As can be seen above, where contents and personal possessions are covered by the same insurance policy has a building, the location of the risk will be the location in which the property is situated.

Following the end of the transition period, a UK intermediary will be subject to the local law and the expectations of relevant national regulators relating to market access by third country intermediaries to that EEA territory where the student is residing.

It would also be appropriate for brokers to confirm the scope of coverage of the insurance policy with capacity providers as these might be impacted by the end of the transition period.