What a “no-deal” Brexit means for insurance companies and policyholders in Austria
With its departure from the EU, the United Kingdom of Great Britain will become a third country for the EU. Withdrawal from the internal market means UK insurance companies will no longer be permitted to conduct insurance business in other EU member states through the Passporting System. We explain under which conditions British insurance companies may (continue to) operate in Austria and what happens to your insurance contract after a “no-deal” Brexit.
European insurance supervision law allows insurance companies to conduct their insurance business throughout the internal market. The guiding principle is the European principle of uniform licensing. This means that an insurance undertaking only needs one authorisation for the whole of the EEA, namely that of its Member State of residence. The authorisation of the Member State in which the insurer has its registered office creates an automatic right of access to the entire EEA internal market. However, the freedom to take cross-border action is limited by a notification procedure. Only after notification in the Member State concerned may an insurance company offer insurance services in that Member State. Business activities in other Member States are conducted either under the freedom to provide services or the freedom of establishment (Passporting System).
In the event of a withdrawal without prior agreement with the EU, UK insurance companies in Austria are to be regarded as third country insurers. They may only conduct domestic insurance business through a branch in Austria, irrespective of whether the activity is to be taken up for the first time after withdrawal or whether it continues an existing business activity. The principles of freedom of establishment and freedom to provide services no longer apply to these companies.
Branch and licence necessary
To accept business operation in Austria, it suffices if insurance contracts are concluded in Austria or are advertised for conclusion in Austria. Internet advertising is regarded as advertising in Austria if it is targeted at Austria. It is necessary to register the branch and its management in the commercial register to begin or continue an insurance business.
To establish a branch, the UK insurance company requires a license from the competent Financial Market Authority (FMA). This is the main difference to an Austrian branch of an insurance company domiciled in the EU: the latter does not require a licence. In contrast to EU insurer branches, branches of UK insurance companies (such as a company domiciled in Austria) is also subject without restriction to control by the FMA under Austrian law.
Access to the Austrian insurance market cannot be facilitated for UK insurers following an unregulated withdrawal from the EU by means of bilateral agreements between Austria and the UK, as this would be contrary to the provisions of European insurance supervision law on access to the internal market.
Emergency plans for a “no-deal” Brexit
Insurance contracts concluded before a “no-deal” Brexit pose a particular challenge. What effects an unregulated withdrawal will have on them is still unclear and has not been conclusively clarified. At the level of the supervisory authorities, there seems to be at least agreement that cross-border insurance contracts with British insurers remain valid under civil law even after the withdrawal date.
On the other hand, the question of whether contracts with policyholders in the EU or Austria can be fulfilled at all by British insurers in view of the loss of their entitlement to conduct insurance business in other EU member states poses major difficulties. For example, the European Insurance and Occupational Pensions Authority (EIOPA), of which the Austrian FMA is also a member, states that UK insurance companies would no longer be entitled, after a "hard Brexit", to carry out insurance activities within the scope of cross-border insurance contracts without special preparatory measures to ensure they could fulfil their contracts.
On this basis, EIOPA has focussed on setting out measures for dealing with existing insurance contracts from British insurers in their “no-deal” Brexit “contingency plans”. In EIOPA’s view, for example, transferring existing insurance portfolios to a subsidiary or establishing a licensed branch in one of the remaining EU Member States could be considered in order to ensure the contracts remain enforceable.
The measures taken will largely depend on the UK insurer concerned. By June 2018—according to an EIOPA survey—72% of insurance companies with cross-border operations between the UK and the EU had already developed contingency plans and the measures appear to be very heterogeneous. 10% will simply terminate contracts in the event of a hard Brexit. 20% will transfer the portfolio to another insurance company which can continue to provide the service in conformity with the law. 6% of insurance companies will relocate or set up a licensed branch in order to continue providing the service. However, 7% of the companies concerned believe that no specific measures will be necessary despite Brexit. The remaining 38% have put together a bundle of very heterogeneous and very specific measures. It is therefore advisable to ask the insurer about its own insurance contract.