Why Brexit remains an unwelcome headache for London’s specialty insurers

The final toll of leaving the EU has yet to be counted but the decision has resulted in additional headaches for a market already under siege from a high expense ratio, a global pandemic and much sweeping technological change.

In the first quarter of 2021, everyone from Scottish seafood producers to clothing importers were starting to wake up to a new reality of increased border friction and significant red tape. For the City and London Market especially, the loss of passporting rights has required insurers to disentangle around £4 billion of premium sourced from the EEA and to ensure this business was correctly routed through a regulated European branch or Lloyd’s Brussels hub.

Failing to do so places both brokers and carriers in potential breach of local laws and the unwelcome prospect of a reputation damaging fine.

In theory the task should be simple. Surely carriers should know in what jurisdiction a risk applies and their associated exposure? Not so it seems.

Even now, in the second quarter of 2021, the harsh reality at the coal face is proving a major headache for carriers across the market, shining a light on a complex, legacy placing process and the systems and data which support it.

The legal framework by which business is being switched from London to the newly formed Lloyd’s Brussels is known as a Part VII transfer. Transferring policies relate to those which have either a risk component situated in the EEA or indeed an EEA resident policyholder.

Lloyd’s has sought to assist this process by reviewing all relevant risks passing through its clearing systems to prepare a master list of affected policies.

Carriers – who are ultimately responsible from a regulatory perspective – are having to review Lloyd’s list to check to ensure it matches with their records and act accordingly, asking brokers to reclassify and re-submit policies when required. Unfortunately for insurers this can be a far from straight forward process. Here’s why:

• In a global market there are many risks or facilities marked as having “worldwide” coverage. This blanket catch all makes it hard to understand what the exposure is to the EEA without more detailed, fine grained analysis.

• Any “in force” global binder will have an Original Signing Number and Date (OSND) assigned by Lloyd’s and where required, brokers are having to resubmit this business separately together with an EEA FIL code to ensure it complies with Brexit requirements and this often means a new OSDN reference.

• If a risk requires reclassifying and resubmission by the broker, the carrier has to contact the broker and request this which has led to additional work and various disputes as parties review and agree any prior discrepancies. In addition, some carrier requests for changes to be made at bureau level are being disputed leading to further investigation.  With limited resources this is taking time.

• There are now a number of local exclusions that need to be considered and applied in risk transfer e.g. certain German reinsurance exclusions.

For larger carriers taking a lead position across a larger book of impacted business, this triage and comparison process for legacy business is downright painful and takes up considerable employee time.

Further, monitoring new (2021+) risks going forward for Brexit compliance can be a clunky and error prone process often performed in the back office rather than with frontline underwriting teams.

Within this context DQPro has not only seen a surge in Brexit related rule enquiries, but is saving significant employee time in finding and fixing errors.

For legacy business we’re actively triaging risks held in multiple policy systems for which a carrier is marked as Lead and comparing these with the Lloyd’s master list across multiple categories to determine which risks are clearly in/out and those which might be ambiguous e.g. with mixed EEA and non-EEA codes.

This is allowing carriers to laser focus their limited resource on those risks which are the most difficult to categorise and thereby ensure a much faster resolution,

Meanwhile for new business, DQPro is actively monitoring Brexit compliance for some of the largest carriers in the market, providing proactive, daily monitoring across 100% of inbound risks.

By using both carrier specific rules and the latest Brexit checks provided by the DQPro Market Standard, our users are assured that any breaches are dealt with quickly, strengthening processes and reducing cost and daily operating risk.

Brexit does represent a major shift for our market, but dealing with checks around passporting rights, exclusions, risk classifications and beyond doesn’t need to involve drama. It shouldn’t be a headache for an industry which has all the tools it needs at its fingertips to trade across international borders with confidence.

What price do you put on daily data confidence for your operation?