Now that the transition period has ended, a key focus for UK life insurers is their ability to continue to provide services to EEA-based customers (including expats) in relation to pensions, retirement income, life insurance and long-term protection business.
This sector is closely connected with the general insurance and investment sectors. There is an overlap with the key risks affecting these sectors. Read the information for:
- general insurers and intermediaries in the UK[2]
- participants in the wholesale markets operating in the UK (including wholesale banks, wholesale markets and asset managers)[3]
You should already have assessed the impact of Brexit on your business and your customers.
Servicing your EEA customers after the transition period
If you have customers based in the EEA, you should already have decided on your approach to servicing your existing contracts with them. For example, many firms have moved or are moving EEA customers’ policies to an EEA entity by means of a Part 7 transfer. You should be discussing your plans with relevant national regulators and taking the steps available to you to continue to service customers in accordance with local law and national regulators’ expectations.
The European Insurance and Occupational Pensions Authority (EIOPA) has published recommendations[4] for the insurance sector in light of the United Kingdom withdrawing from the European Union. The recommendations are addressed to national regulators and aim to minimise detriment to policyholders and beneficiaries once EU law no longer applies in the UK.
EIOPA recommends that life insurance contracts between UK firms and UK-based customers who subsequently move to the EEA, should not be regarded as cross-border business. This includes existing pension contracts in accumulation that contain a ‘right or option’ for policyholders to realise their pension benefits. We welcome this recommendation.
However, these are just recommendations and whether you need regulatory permissions in a local EEA jurisdiction depends on local law and the approach of the local authorities in that jurisdiction, which means it is important that you have discussed your plans with them.
We expect firms to act in accordance with local laws and local regulators’ expectations, while making sure their decisions are guided by obtaining appropriate outcomes for their customers.
We know this may involve different considerations in different circumstances. It would clearly be a bad outcome for a consumer not to receive the payment of a valid claim or any other payments they’re entitled to.
If a firm chooses to remove a right or an option in a contract due to member states’ local laws, then, as long as their primary cover is still in place, it may be possible to make up for the limitation through other steps (subject to consideration of any local law requirements). We would expect the firm to review their contractual obligations and the ongoing fairness and value of the product. If appropriate, firms should consider offering compensation and/or a refund to their customer for their loss of optionality. Another example would be for the firm to remove any exit charges where the insured chooses to end the policy because of the above limitation, in order to find one elsewhere without that limitation.
For open market options, if the customer is unable to shop around due to local law restrictions, firms must consider what potential harms may arise for a particular consumer. They should also consider any appropriate mitigation, including, for example, offering rates that would otherwise have been available to the customer.
The underlying principle in these examples is the need for firms to consider customers’ circumstances and take an approach that gives the customer an appropriate outcome, making sure the customer doesn’t lose out overall.
For customers who purchase a product after the end of the transition period, firms should set out the limitations of the contract at the point of sale. They should make it clear to customers that moving to the EEA may affect their ability to continue to benefit fully from their cover, although it may vary according to the particular EEA state. More broadly, firms need to make sure they pay due regard to customers’ information needs, and be ready to answer customers’ queries accurately and fairly.
EEA bank account closures
Some UK banks are notifying EEA-based customers that they will be closing their bank accounts because of Brexit and the end of passporting. As a result, EEA residents receiving or making a payment into a pension, annuity, income drawdown, insurance, investment or savings product may be affected. We understand that many providers have the ability to pay into and collect monies from an overseas account. We expect firms to take steps to avoid disruption for their customers and ensure that customers can continue to receive payments and contribute into their products.
We expect firms to send clear and timely communications to affected consumers and provide dedicated support taking account of individual needs and circumstances. Firms should also make sure they have sufficient operational capacity to support potentially higher volumes of customer activity (such as change of account requests or other queries) now that the transition period has ended. Firms should also remain vigilant and mitigate against any new sources of fraud risk.