Could Brexit Provide An Opportunity For The Insurance Industry?

Written by EO Executives on Jun 20, 2016

A fortnight ago I wrote a blog regarding Brexit and the impact it might have on the Insurance Market, arguing that on balance "Remain" seemed like the most viable option for individuals within the insurance industry. The response I received from my connections both on LinkedIn and through the comments section on our blog was intriguing - not only in terms of volume, but also the number of individuals who challenged the conclusions I’d drawn.  These were highly skilled, highly qualified insurance professionals, who I’d assumed would all be in agreement with my current thinking. With this in mind, I decided to revisit my thoughts and realised for the first time since the referendum was announced that leaving the EU might not be Armageddon.

The Impact Of Brexit Would Not Be Immediate

This time next week there is a good chance that we will no longer be part of the EU, but life in the UK will pretty much look the same. Life will look the same for some time following a “Leave” vote due to the Article 50 negotiations which will take at least 2 years putting into place the exit strategy.  Brussels is certainly steeped in bureaucracy and wrapped in red tape – can anyone name key personnel, apart from David Cameron who will run this withdrawal agreement? I don’t think I can, Google can’t either.

Brussels Is Largely Run By Unelected Eurocrats

The EU is not democratic, a high percentage of members are unelected. Brussels has the ability to over-rule democratic polices put in place by member countries. Portugal and Spain have both had to compromise their economic plans in recent years, put in place following democratic election. Then there is the example of the unelected International Monetary Fund Managing Director who was responsible for the recent economic “changes” with Greece- I’m not sure I’d trust her with the contents of a child’s piggy bank. As we know, Germany bailed out Greece, as we’re all on the same team, but Greece will be repaying that loan indefinitely. With strong economies like Germany and the UK part of the EU it’s no wonder that a long list of countries are eager to join, but how many of those are recovering from the aftermath of civil war, or are currently at war? 

Should We Just Accept The EU Concept Is Broken?

So, has the EU’s “one size fits all” approach had its day? Member states are not the same on so many levels, the Germany economy is booming while others are going backwards. EU policy has been seen to have a detrimental effect on the UK - The Common Agricultural Policy bankrupted many British farmers leading to an increased number of suicides. EU Laws bans countries from nationalising certain industries, so in essence the British Government can only help certain businesses. Some argue that the EU has destroyed British manufacturing as since 1973 we are no longer seen as a manufacturer of goods and Brussels has kept import prices of certain goods at a level where we cannot compete with economies like China. Take the recent example of Tata Steel.

The UK demographic is very different from when we joined the union 43 years ago. We are an aging population having fewer children than in the 1970s, longevity is causing more than an actuarial headache! The UK economy is currently dependent on immigration for financial growth, this has happened organically. If we leave the EU the competition for jobs may potentially decrease, but as with any period of change this will in turn create opportunity. 

Could Brexit Be Seen As An Opportunity?

A vote for Brexit, would be a vote for change. The opportunity for a fresh start. As I said in my previous blog, most people working today have known no different and so to remain would be the safe option.  The UK is a strong economy and it will be knocked initially, but once knocked down it will build again. Considering the insurance market, risk appetite will soar and this will give UK firms the opportunity to diversify. To leave would be bold and as they say, fortune favours the bold.

One well respected actuary put a balanced case across particularly well in response to my previous blog when he said:

"I do think that the EU will at some point be reformed to be a more workable solution - potentially smaller unions of more like-minded participants. Voting remain pushes that day into the future and avoids the UK being the catalyst for this reformation with all the bad press that would entail. However, it could potentially take a generation or two of stagnation and disruption before those brave steps are then taken.

If we do vote to leave there will be pain for 10 to 15 years as further exits follow and the process of reformation starts but that means we are back to growth sooner.

Given our significant trade with non-EU economies I do struggle to buy the arguments from those who worry about trade barriers. The key issue is retribution from an angry Europe.

In summary, both leave and remain are damaging as insurance companies will become risk-averse and reduce investment until we reach final resolution. In the long term, remain will mean that the outlook is clearer sooner - overall a better outcome."

What Next?

As ever i'm always interested to hear your views so let me know in the comments - has your opinion changed about Brexit and do you think if we were to leave it will present opportunity within the insurance industry or be fraught with risk and danger?

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Editors note: After this article was written we heard about the tragic passing of MP Jo Cox. Our thoughts go out to her family at this sad time.

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