As an organization committed to helping the London, U.K. insurance market and U.S.-based insurance agencies interact for the purpose of identifying and pursuing new business opportunities, the outcome of the 23 June 2016 U.K. Referendum on European Union (E.U.) membership (“Brexit”) is likely prompting many appropriate questions relevant to all of us. The international media is focused on the U.K. financial services sector right now and since the Cover Holder and Risk Taker’s Exchange (CHART-Exchange) core mission is to increase U.S./London insurance related new business, we are closely following the “Brexit” implications.
Wilson Elser Consulting is a vendor partner member of the CHART-Exchange organization. In this article, let’s explore a chronologically summary of the “Brexit” circumstances in order to establish a collective understanding of these historical events and create baseline perspectives for future business planning. First, some background information for the benefit of any interested reader.
As we may already know, the E.U. is presently an economic and political union between 28 European countries that was established after World War II in 1958 with 6 original nations for the purpose of fostering economic cooperation. The idea is that countries trading with each other become economically interdependent and therefore more likely to avoid conflict. The U.K. joined the E.U. in 1973 (and has remained a member for 43 years and counting).
With exceptions, a guiding principle of the E.U. is the creation of a single market and general movement of people, goods, services, and money around the E.U. as if it were a single country. The E.U. is guided by the rule of law with everything based on treaties, voluntarily and democratically agreed by its members. The Lisbon Treaty, which went into effect among members in 2009, communicates in Article 50, the capability for a voluntary exit by a member nation at any time.
Leaping forward to modern day, back in February of this year, U.K. Prime Minister David Cameron announced the conclusion of negotiations with the E.U. on new terms for the U.K.’s future membership. These new terms were negotiated in order to address recurrent issues raised by British citizens and various political groups about the U.K.’s membership in the E.U.
As a part of internal political agreements, Mr. Cameron announced, at the same time, that the people of Britain would advise the government by referendum vote on whether to leave the E.U. (“Brexit”) or remain a member (and take advantage of the new terms). After four months of campaigning by politicians and public leaders on both sides of the argument, the British voters (through a 51.9% majority) preferred the option of leaving the E.U.
During the campaign period, many U.K. companies (including Lloyd’s and London Market insurers) publicly communicated their perception that remaining in the E.U. would be the best overall option for business.
After votes were tallied and while the “Brexit” result was being communicated on Friday June 24th, U.K. Prime Minister David Cameron simultaneously announced that as a result of the referendum outcome, he intends to resign as Prime Minister and he would not personally trigger Article 50 of the Lisbon Treaty (a member country’s option to trigger their own E.U. exit, as mentioned above).
Official triggering and the resultant +/- two year process of exit negotiations are now left, in the Prime Minister’s words, for a successor to formally lead and move forward. Statements by Mr. Cameron suggest that a successor could be in place around October, but continuously emerging political circumstances may dictate otherwise. As a result of Article 50 having not yet been triggered, it is important to remember that no official change has yet been effectuated as a result of the referendum.
The U.K. remains in the E.U. at the present time and, in fact, when an exit is triggered the underlying rule-of-law treaty allows for 2 years of continued membership between the exiting country and the E.U. while departure terms and new trade agreements are separately negotiated (more time is allowed if unanimously agreed by the remaining E.U. members). From the perspective of the CHART-Exchange, it is important to clarify and reinforce that the U.S. and the U.K. continue to operate under U.S. / E.U. trade agreements, while separate and independent negotiations take shape.
As we have seen from the international news media, the circumstances mentioned above now create uncertainty and volatility in stock markets, foreign exchange markets, and other additional headlines seem to emerge on a regular basis. The British majority opinion was a surprise to the world’s financial ecosystem, as public and private sector polling suggested a close vote but opposite outcome in the final days leading up to the referendum.
However, follow-up communications to date from the London Insurance Market itself (post “Brexit”) seem to consistently acknowledge that while the outcome was not the preferred overall option for business, they will continue 1) “operating business as usual for the next couple years,” 2) “planning, updating, and executing contingency arrangements,” and 3) “remaining positive about our future.”
As all of us continue to monitor the situation in the months and years ahead, hopefully these baseline perspectives in the early days of “Brexit” will help to inform our thinking. Personally, as an experienced leader within and supporter of the insurance industry over the past dozen years, I am not surprised at the calmness of our reactions, the sophistication of contingency planning efforts already underway, and the collective sense of optimism that is being expressed.
The insurance industry is inherently disciplined at global risk management and I believe it will manage this change accordingly. Moreover, S&P Global Ratings is quoted in numerous media outlets saying: “We see the insurance sector as less exposed to the leave vote than the rest of the financial sector. While representing about one-third of the UK's very substantial financial services net export surplus, the insurance sector is far more reliant on trade with non-EU countries - especially the US.” If that’s true, then perhaps CHART-Exchange now has even more work and even more U.S. / London short and long-term business opportunities in the future.
About Wilson Elser Consulting
Operating as a subsidiary consultancy from Wilson Elser, one of the world’s most preeminent insurance defense and fullservice law firms with nearly 800 lawyers and 30 offices throughout the USA and 1 office in London, Wilson Elser Consulting provides unique professional experience, advisory services, and other non-legal advice and business insights to insurance markets, carriers, and any organization involved in the application of enterprise risk, governance, legal and compliance management; legal operations and legal spend management; claims vendor and claims litigation management; and insurance operations and systems by guiding our clients to champion change through process, technology, and analytics. For more info, contact Mr. Jesse R. Viani at +1 (212) 915- 5298 or firstname.lastname@example.org.
Jesse R. Viani (an American citizen) is a practicing consultant and the Director of Insurance Business Services at Wilson Elser Consulting, a consultancy established in both New York, NY and London UK which offers advisory services, professional services, and analytics to clients all over the world. Prior to assuming this role, Jesse managed client relationships and oversaw complex international insurance software and managed services implementations as Global Account Executive at one of the world’s largest information, software, and service companies. Previously, Jesse was a manager at the Am Law 200 law firm Wilson Elser Moskowitz Edelman & Dicker LLP where he led the firm’s e-Business department, overseeing more than 150 successful compliance program and e-billing process implementations. Before joining Wilson Elser, Jesse was Director of Operations and Systems for American International Group (AIG), working in Claims Litigation Management (now known as the AIG Legal Operations Center), where he managed the carrier’s relationships with various enterprise software companies, legal bill review providers and other non-legal services vendors. Jesse graduated magna cum laude from the Pennsylvania College of Technology with a bachelor of science degree and later studied as a juris doctor candidate at the Seton Hall University School of Law.
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