Failure to secure a trade-deal with Europe before the Brexit deadline expires is a real possibility and businesses should plan for this eventuality, Airmic members heard at the association's third Brexit roundtable last month.
Britain has until March 2019 to negotiate a deal with Europe - two years from the formal triggering of Article 50 - at which point trade relationships with Europe will default to the rules set out by the World Trade Organisation, which will be significantly damaging for UK businesses.
According to Andy Bagnall, head of external affairs at KPMG, the political balance in both the UK and Europe is extremely delicate. "There is clearly a chance that the Brexit talks break down or don't reach a deal in the time. We therefore have to prepare for a WTO situation. That's what we are telling businesses."
He added, "Ask yourselves what the lead times of your decisions are. Can you wait until we have more clarity? If not, the decision to act or not to act will have to be made at risk."
Andy Bagnall, head of external affairs, KPMG
He said that there is an expectation that politicians will act in an economically-rational way during the negotiations, but in reality European negotiators will be "prepared to take some pain to secure the future of the EU."
Paul Barrett, chief operating officer, enterprise risk management, at AIG, which last month announced plans to open a base in Luxemburg as part of its post-Brexit planning, agreed. "Don't underestimate the importance of the political project to the European establishment. The Brexit deal will have to show the UK in a worse off position than when we were in the club. I predict there will be a deal - but with substantial gaps."
Paul Barrett, chief operating officer, enterprise risk management, AIG
Of AIG's decision to open in Luxemburg, he said: "Every change brings opportunity. We wanted to benefit from being the first mover and provide continuity of service to our customers. We can't just wait and hope that Britain gets a good Brexit deal."
Dave Matcham, CEO of the International Underwriting Association, was sanguine about the impact of Britain's exit from the EU on the London market. He noted that despite recent announcements from some insurers to open in new locations, "we are not seeing other hub cities cropping up" to rival London. "The role of London is not majorly affected by the different possible models insurers are choosing. It is affected to some degree, but I am actually optimistic."
Dave Matcham, CEO, International Underwriting Association
Matcham said the London Market Group (LMG) is working closely with the Association of British Insurers (ABI) - which has close political ties - to lobby the UK government, and noted "there is evidence" that the government is listening to the insurance market. In particular, the LMG is pushing to:
- Establish regulatory equivalence under Solvency II;
- Ensure the right for UK insurers and reinsurers to have unimpeded access to the EU market;
- Get an early agreement for an implementation period with market access rights.
The LMG is also lobbying the government to give UK regulators - the PRA and FCA - a balancing statutory objective to consider the international competitiveness of the UK financial markets. Matcham noted: "Our competitors in Singapore, Qatar, Dubai and Bermuda have regulators with statutory duties to actively support the promotion of their local insurance markets. The FCA and PRA, by contrast, do not have such objectives. We hope that will change."