By now the shock of Brexit is wearing off and the reality is sinking in. While it will continue to shake up the international market for the foreseeable future, it will also create opportunities for emerging markets such as ours and should therefore not be viewed wholly negatively.
The landscape of how financial institutions operate is going to change and potentially the African insurance industry has the opportunity to benefit from UK investment.
Despite the two year grace period triggered by a notice to the European Council under Article 50 of the Treaty on European Union (as yet to happen), affected UK financial institutions operating within the EU need to start putting together a plan to ensure effective and seamless transition of business once there is a final break from the European Union (EU). Local insurers with UK-based holding companies may need to consider how cross-border interaction with other subsidiaries in the EU will operate in the future.
For now Brexit does not affect the South African market. Depending on what agreement is reached between the EU council and the UK, there may be implications for placing insurance into Lloyd’s or where international insurers with South African operations place business with a passporting insurer.
Currently membership of the EU means that UK-based insurers have the right to operate in other member states through a branch or by offering cross-border services. This gives UK insurers “passporting” rights. No longer remaining an EU member may require UK insurers to acquire insurance licenses in each of the 27 EU member states. This may impact on international insurers operating in South Africa that could reinsure directly into various jurisdictions in the EU, and may potentially in the future not be able to do so. This will be dependent on what agreement is reached between the UK and the EU.
This uncertainty means that UK insurers should be looking at alternative markets to ensure continuous growth post exiting the EU. The consequences of Brexit at this stage may be uncertain but the parameters of doing business within African jurisdictions are definite and the continent should use this to its advantage. Stakeholders and investors will still expect growth.
There is now a real opportunity for UK insurers to enter the African market as licensed insurers, create capacity and tap into the growing local market. Undoubtedly UK insurers that may, depending on what agreement is reached between the UK and the EU Council, be required to set up subsidies in EU member states will evaluate the cost of doing business in an EEA member state versus in Africa.
Until such time as Article 50 of the Treaty of the EU is invoked by the UK Government, Britain will remain in the EU and business will continue as usual. Only the UK can trigger Article 50 and once done, there will be a two year negotiation period between the government and EU council. Negotiations must be concluded within the two year period unless agreement is reached between the parties for a different time period.
It is not clear whether this will indeed be possible as there is no precedent. Regardless, Africa and in particular South Africa where our insurance market operates as a first world industry, presents a compelling opportunity for the insurance industry and the Brexit vote could be an enabler of growth into emerging markets.