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Finance & Financial Services

Impact of Brexit on the European and Polish insurance market

by Beata Balas-Noszczyk, partner, Hogan Lovells in Poland, and Charles Rix, partner, Hogan Lovells in the UK
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The UK is seen as the world’s leading insurance centre; London’s financial institutions have access to enormous amount of potential consumers, reflecting its economic potential.

Currently, many British insurers are operating across Europe, contributing significantly to the continuous growth of the European insurance market.

Brexit will have a significant impact on the UK and EU member states, including Poland. The extent of this impact will largely depend on the nature of the arrangements adopted between the UK and the EU during the second phase of the talks – that is on how the institutions in each jurisdiction will continue to access markets on a cross-border basis. Possibly it will also depend on the extent to which the UK continues to apply the law based on EU financial services legislation.

The UK faces the process of renegotiating its trading arrangements not just with the EU but also with the rest of the world. As we can see now it is not a swift process and whilst there are different models that might apply to the UK (such as the Norwegian or Swiss model), it cannot be said for certain what arrangements will be put in place. For most insurance businesses, it's a case of considering contingency plans and watching developments day by day until the future becomes clearer.

What arrangements might be expected?

Under the Norwegian model, the UK would be a member of the European Economic Area (EEA) and would be bound by EU legislation. In turn, the Swiss model means being outside the EEA but becoming an equivalent jurisdiction for regulatory purposes. The UK would need to maintain a regulatory regime similar to the EU's but there may be some flexibility to streamline the UK system. In both models, the UK would probably have little or no influence over future EU regulatory developments. If the UK and European regulatory regimes diverged over time, the UK may find itself in the difficult position of having to follow EEA policy or risk losing its 'equivalence' status, even though that policy is developed without the same level of influence from the UK insurance industry that has previously applied.  

The key Brexit challenge – cross-border activity rules

Reestablishing cross-border activity rules between the European and UK insurance market will be a key concern for the insurers, starting with the right to passport into other countries in the EEA. If the right to passport is withdrawn, both UK insurers with Polish businesses and Polish insurers wishing to operate in UK will almost certainly need to restructure their businesses. UK insurers could potentially seek permission to conduct insurance business in Poland, without using the passport. Alternatively, they could operate through a Poland-based company. Such a new Poland-based company would need permission to conduct insurance business in Poland. However, both options are rather long and complex.

What might create the biggest obstacle of this solution is a multiplication of regulations. British and Polish insurers, on deciding to establish a Poland- or UK-based company respectively, would need to comply with entirely different regulations such as those regarding capital and solvency requirements. This would involve much effort and increase of costs. A more efficient solution would be to restructure the business so that the UK or Polish business is a branch of a new UK or Polish company respectively.

Although, currently the UK insurers operating in Poland have indicated that they do not intend to withdraw from Poland and their investment plans will remain unchanged, concerns arising in terms of business restructuring might discourage insurers from investing in the Polish market. If this is the case, it would strongly influence Polish insurance market potential.

Next phase of uncertainty period

After having concluded an agreement on the three priority issues – citizens’ rights, a financial settlement and Northern Ireland, it is now time to move to the second phase of Brexit negotiations regarding transitional arrangements and the future EU-UK relations. As the results of the forthcoming talks are crucial for the insurers to finally take the decisions on their future form of business, it is important the negotiations will go smoothly and end this long period of uncertainty for businesses as soon as possible. Meanwhile, insurers will still have to run their business being continuously prepared to react immediately to any possible scenario.

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