Aviva prepares for Brexit with plan to transfer Irish policies

UK insurer Aviva is not taking any risks that it won't be able to insure Irish customers once the UK leaves the European Union next March by switching Irish policyholders to a newly created Irish-domiciled company.

A UK-EU deal for financial services has yet to be struck – and may not be by the March deadline – which gives rise to this uncertainty.

Last month the UK government published a no-deal scenario for financial services, warning that EU-based customers of UK firms currently passporting into the European Economic Area (EEA) may lose the ability to access existing insurance contracts due to UK firms losing their rights to passport, while the Central Bank urged financial services firms in July to have “robust contingency measures” in place. Other UK insurers have already readied their plans. Standard Life Aberdeen for example, is setting up an EU hub in Dublin.

London-headquartered Aviva, which has a 15 per cent slice of both the life and pensions and general insurance markets in Ireland, has written to its customers informing them that it intends to transfer their policies to a new Irish-based company, Aviva Insurance Ireland DAC, which was created in June 2017. This is in order to ensure that it can continue to serve the Irish market once the UK leaves the European Union.

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Provide certainty

It means that the role of regulating Aviva will move from the Bank of England to the Central Bank of Ireland, as Aviva currently writes insurance business in Ireland on a freedom-of-services basis.

In its letter, Aviva says it’s now “likely” that companies based in the UK, such as Aviva, will lose the right to have European branches and to offer insurance in the EU in the same way as they do now. This would mean that Aviva might be “unable to administer your policy in the same way” after Brexit.

“We want to provide certainty for customers who may be affected by this and are preparing now for anticipated changes in the law which applies to Aviva,” it wrote.

According to Aviva, “all” policies issued through Aviva’s branch in the Republic will transfer to the new company, as will certain policies issued through its former branches in France and Belgium and certain commercial and retail policies where some or all of the risk insured is situated in EU/EEA states other than the UK. A small number of policies written on a freedom-of-service basis, which will either have expired before Brexit, or shortly afterwards, aren’t covered by the transfer.

The transfer of such policies is subject to court approval in Edinburgh on January 15th, and if approved the policies will transfer on February 1st, 2019.

Impact for customers

The transfer has been reviewed by an independent expert, Simon Sheaf of Grant Thornton, who said he didn't expect any group of policy holders to be "materially adversely affected" by the proposal, and sees "no reason" why it shouldn't go ahead.

However, the move means that Irish customers will no longer qualify for the UK Financial Services Compensation Scheme, which provides protection for policy holders when UK companies become insolvent. While customers will instead receive protection under the Irish Insurance Compensation Fund (ICF), their protection “may reduce”, as the ICF imposes stricter limitations on compensation payments and does not cover all policy holders’ liabilities.