Brexit provides an opportunity to highlight Ireland’s potential as a centre of excellence in insurance, but we must act.
They say that a year is a long time in politics, and that is truer today in the UK than perhaps at any point in recent history. It is fair to say that the UK is in a much different place politically, economically and nationally than a little over a year ago. As Brexit negotiators limber up for battle, the chariot transporting Theresa May’s Government to the battlefield is radically different to the chariot she inherited from David Cameron.
Markets, businesses and consumers continue to face uncertainty as to what all this will mean for them. The Conservative Government majority has been vaporised after an ill-considered and ill-timed election; concerns abound about the UK economy; and the power-broking deal with the Democratic Unionist Party has stirred the interest of other parties and provinces.
This uncertainty means a mix of challenges and opportunities for many sectors in Ireland – one of which is the insurance industry. There is a lot at stake as the City of London is the world’s leading insurance centre. Many of the insurers based in London write business throughout the single market of the European Union (EU). The EU is a significant market, accounting for 32% of the global insurance business with assets of almost €9,800 billion invested on behalf of life and non-life insurance customers. The outcome of the Brexit referendum has called into question the continued ability of UK-authorised insurers to access the EU market from their UK base. Therefore, the impact of Brexit on the insurance sector throughout the EU – in Ireland in particular – must be kept in focus.
A hard Brexit means hard outcomes
The most prudent position for the UK will be to negotiate a soft Brexit and seek to maintain access to EU markets. However, given the recent election result in France, the UK could find a less than receptive audience for such an outcome.
Given the UK’s stated intention to leave the existing single market, whether followed by a transitionary arrangement or not, UK and EU insurers who rely on the financial services passport cannot afford to wait any longer to address the uncertainty surrounding their current business model in case there is any outcome approaching the ‘hard’ side of the Brexit spectrum.
Ireland as an insurance centre of excellence
There has already been a strong and concerted focus on securing some post-Brexit EU institutions for Ireland. The insurance sector, however, is one where there is now an urgent need for an increased focus from all stakeholders. With a committed and progressive approach, Ireland can attain a post-Brexit role as Europe’s insurance centre of excellence.
Ireland already has a very impressive track record when it comes to foreign direct investment, the pharmaceutical industry being a prime example. The country should adopt a similar cohesive focus to attract insurance business not only for those companies displaced by Brexit, but in an ongoing worldwide campaign to attract capital investment and spur economic growth.
Some media commentary has suggested that Ireland did not fare as well as expected in recent announcements of new EU locations selected by some insurance firms when compared to banks. Some commentators attribute this to regulatory arbitrage across the competing jurisdictions or proximity to key EU cities, but insurers who have already selected bases elsewhere no doubt have their own operational reasons to support their decisions. Instead of complaining, Ireland should focus on promoting its own positive case – and there is much to draw on.
The case for Ireland
- Ireland acts as an excellent stable gateway to business opportunities in the EU and it is almost impossible to make a solid case for an Irish exit from the single market;
- Ireland already has a highly developed and sophisticated financial services industry. Over half of the world’s top 50 banks and nine out of the world’s 10 leading technology companies are based in Ireland. This means that finance and technological expertise are readily available to new entrants in the Irish market. Most of the world’s leading insurers and reinsurers have long-established bases in Ireland, employing over 28,000 people;
- Ireland has strong technical capability and insurance expertise in the accounting and actuarial professions. As an example, the Society of Actuaries in Ireland has over 1,400 members, including over 750 qualified actuaries – the highest number of actuaries per capita globally;
- Ireland has an advanced utility and telecommunications infrastructure with state-of-the-art optical networks and international connectivity. There has been extensive construction in the commercial office sector following many years of inactivity in the aftermath of the financial crisis. However, residential housing and transport infrastructure are in desperate need of investment and the problems therein must be resolved; and
- Insurers who establish in Ireland will enjoy one of the lowest corporate tax rates in the OECD, currently 12.5%. Ireland has signed double-taxation treaties with 70 countries, which is a key attraction for internationally-focused financial services institutions.
Ireland must increase its focus on becoming an insurance centre of excellence in a worldwide sense for the future, not just in seeking short-term gains. Government and its agencies, independent regulators, and existing businesses and their representative bodies must all play their part. The competition to attract inward investment never ends.
Geoff Sparling FCA is Associate Chief Financial Officer at Allianz Ireland.