1. Reduced returns for insurers will drive higher
insurance premiums for consumers.
Markets hate uncertainty, and we have plenty of that
right now. Uncertainty dampens demand, which in turn reduces returns. Also, the
base rate is likely to be reduced further to close to, or even, zero. Lower
returns mean that insurers will earn less on their assets that back insurance
premiums and hence they will have to increase customers' premiums to
compensate.
2. Offshore-regulated insurers will have to come back onshore.
Many providers of discount insurance today (think offers
you see in the newspapers and on the trains for very cheap travel insurance)
have been able to support their low-cost operations by being domiciled and
(importantly) regulated overseas, e.g. in Malta.
They rely on the EU's so called "passporting"
rules that allow them to operate anywhere in the EU as a function of being
regulated in another of the EU states. The FCA has not made any mention of
their intention to end this practice, but I am sure that such a decision will
be reviewed in the coming months.
3. Withdrawal of EU insurers will diminish competition
& drive higher prices for consumers.
While a number of continental EU insurers have already
reaffirmed their commitment to the UK insurance market, it can surely only be a
matter of time before the withdrawal of some of those offerings which are only
marginally profitable. Fewer offerings mean less competition. Less competition
means higher prices.
4. Travel Insurance will get more expensive as EHIC &
E111 are scrapped.
One of the reasons why European travel insurance is a low
cost is because there is the presumption that should a policyholder fall ill
while overseas that they will be treated in a local hospital on the reciprocal
healthcare arrangement that exists across the EU and therefore not require
expensive repatriation. If this reciprocal arrangement falls away, then
policyholders are likely to make larger claims, and so premiums will have to
increase to compensate.
5. Demand for redundancy cover might increase.
With increasing uncertainty over job security, it is
possible that more consumers might seek to protect themselves from losing their
employment through buying unemployment cover, separate from anything that they
might already have tied to their mortgage.
6. Gender-specific pricing might return.
One of the less-justifiable EU laws was that of
abolishing gender-specific insurance rates. Under rules, which came in to force
at the end of December 2012, insurers were not permitted to charge differential
rates to men and women. So motor insurance premiums for seventeen-year-olds are
set equally for male and female drivers, despite the well-known fact that
teenage boys have a worse driving record than teenage girls.
Consequently, girls pay higher premiums than they would
have done before the rule change. The same principle applies, but in the other
direction, when it comes to annuity rates: male and female rates have to be set
equal, despite the fact that women live longer than men. In this example, men
end up with higher annuities than they would have done before the change. Most
(all?) experts believe that this rule is bonkers and it is possible that the UK
might push to repeal this law.
How much of the above becomes a reality no one has any idea, but one thing is certain: the insurance industry is about to enter a
period of significant change and with change comes opportunity.
Insurance Age 6.7.16 Steven Mendel