Market access

Where is the risk located?

General Explanation

UK intermediaries and UK insurers
It would be prudent for intermediaries and insurers 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 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, 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 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. 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.

Following Brexit, EEA insurers’ passporting rights will be lost in relation to the UK.  However, EEA insurers will continue to be able to cover risks located in other EEA territories (subject to having previously notified its home state regulator of its intention to exercise the relevant passporting rights).  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).
Examples: 
A UK citizen owns a property in France for which they seek to include in an
insurance policy underwritten by a UK insurer and arranged by a UK intermediary.  Prior to Brexit, a UK insurer might have been able to underwrite this risk –
located in France – using its passporting rights. Following Brexit, it is important for UK intermediaries and UK insurers to clarify what is required
by local laws and regulations in relation to insuring property
located in France.

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.  Prior to
Brexit, a UK insurer might have been able to underwrite this risk –
located in Italy – using its passporting rights. Following Brexit, it is important
for UK intermediaries and UK insurers to clarify what is required by
local laws and regulations in relation to vessels registered in Italy.

A German citizen habitually resident in Germany is visiting the UK for
three months and has purchased annual travel insurance underwritten
by a UK insurer and arranged by a UK intermediary. Prior to Brexit, an
insurer might have been able to underwrite this policy – located in
Germany based on the policyholder’s habitual residence – using its
passporting rights.  Following Brexit, it is important for UK intermediaries and UK insurers to clarify what is required by local rules and regulations in relation to insuring policyholders habitually resident in Germany.

A Greek company has purchased employee liability insurance underwritten by a UK insurer and arranged by a UK intermediary.  Prior to Brexit, a UK insurer might have been able to underwrite this risk – located in Greece – using its
passporting rights.  Following Brexit, it is important for UK intermediaries and UK insurers to clarify what is required by local laws and regulations in relation
to companies established in Greece.

UK intermediaries working with UK insurers
It is prudent that intermediaries and insurers 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 risks located in an EEA territory.

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.  Prior to Brexit, a UK intermediary or a UK insurer might have been able to cover such a risk located in another member state on the basis of their passporting rights.

Following Brexit, a UK intermediary or a UK insurer would no longer be able to rely on passporting rights to be able to cover risks located in another EEA territory.  Instead, they would 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.

The UK, for instance, applies a test of where the regulated activities are carried on, an overseas regulator might take a different approach to authorisation based on where the client is based or where the risk is located.  It is therefore important to clarify the position with the relevant competent authority.

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.

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, 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 would appear to prevent UK intermediaries from conducting insurance distribution activities in relation to such insurance policies.

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

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 risks located in an EEA territory.

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.  Prior to Brexit, a UK intermediary or a UK insurer might have been able to cover such a risk located in another member state on the basis of their passporting rights.

Following Brexit, a UK intermediary or a UK insurer would no longer be able to rely on passporting rights to be able to cover risks located in another EEA territory.  Instead, they would 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.

The UK, for instance, applies a test of where the regulated activities are carried on, an overseas regulator might take a different approach to authorisation based on where the client is based or where the risk is located.  It is therefore important to clarify the position with the relevant competent authority.

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.  Prior to Brexit, a UK insurer might have been able to underwrite this risk – located in Italy – using its passporting rights. Following Brexit, it is important for UK intermediaries and UK insurers to clarify what is required by local laws and regulations in relation to vessels registered in Italy.

It is prudent that intermediaries and insurers 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 risks located in an EEA territory.

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.  Prior to Brexit, a UK intermediary or a UK insurer might have been able to cover such a risk located in another member state on the basis of their passporting rights.

Following Brexit, a UK intermediary or a UK insurer would no longer be able to rely on passporting rights to be able to cover risks located in another EEA territory.  Instead, they would 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.

The UK, for instance, applies a test of where the regulated activities are carried on, an overseas regulator might take a different approach to authorisation based on where the client is based or where the risk is located.  It is therefore important to clarify the position with the relevant competent authority.

It would also be appropriate for brokers 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 Brexit. 

It is prudent that intermediaries and insurers 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 risks located in an EEA territory.

As can be seen above, where contents 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.  Prior to Brexit, a UK intermediary or a UK insurer might have been able to cover such a risk located in another member state on the basis of their passporting rights.

Following Brexit, a UK intermediary or a UK insurer would no longer be able to rely on passporting rights to be able to cover risks located in another EEA territory.  Instead, they would 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.

The UK, for instance, applies a test of where the regulated activities are carried on, an overseas regulator might take a different approach to authorisation based on where the client is based or where the risk is located.  It is therefore important to clarify the position with the relevant competent authority.

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 Brexit.