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5 tricky matters: Examining the potential technical insurance pitfalls of Brexit

When the referendum result in June 2016 declared that the UK intended to leave the European Union, the plan was clear – we had to negotiate a withdrawal agreement, leave in March 2019 and enter into a transition period.  

However, three years later, there is still no resolution and this week has seen extraordinary events in Parliament with arguments intensifying on both sides of the debate. At the heart of the matter is whether we leave the EU without a deal on the 31 October or whether, in fact, Brexit will be delayed or even abandoned if a general election causes a change in government.

Uncertainty has been the dominating feature for the last few years, but the insurance industry has been busy making contingency plans in order to manage the consequences of Brexit. This has included setting up offices in European cities and changing processes in order to continue to be able to use passporting rights. However, when it comes to the detail, there could be some unintended consequences of how insurers and their clients have planned, or have failed to plan – all of which could cause problems when it comes to claims. 

We’ve been asked lots of questions recently with regards claim issues, and so have put together some pointers to consider. The top five are shown below but a more extensive list can be found in our ebooklet of tricky Brexit matters.

1) Trigger for cover

Brexit, of itself, is not an insured event. It is a deliberate path of action and therefore is not considered to be fortuitous.

2) Stock sums insured

Stockpiling may be a commercial necessity. Ensuring that stock sums insured are increased to reflect this is also necessary. Bear in mind that if stock is damaged immediately pre-Brexit, and costs to replace it post-Brexit are higher, the sums insured may be inadequate.

3) Premises

The core business interruption cover is triggered by damage at the premises. If critical stock at third party locations is destroyed, any extension to stock cover will not trigger business interruption cover (subject to extensions).

4) Additional duty post-Brexit

After the United Kingdom leaves the EU, duties may be due on replacement purchases of damaged machinery and stock. Sums insured are unlikely to anticipate this. A separate cover, subject to a limit (like additional increased cost of working) for additional duty due may be advisable.

5) Indirect tax

When the United Kingdom leaves the EU, currently recoverable tax on replacement of damaged assets might become irrecoverable. This could have serious implications for the adequacy of sums insured. A separate cover, subject to a limit for irrecoverable tax might be an option to consider.

While there are many things to consider and prepare for, organisations must remain agile as all of the UK, Europe and the industry at large await final Brexit decisions. For a more technical discussion about any issues raised here or in the expanded ebooklet, please feel free to leave a comment or contact me.

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