Without access to the “grandfathering” process, the legality of insurance contracts to EU citizens, including UK expats, will be null and void.
On Monday, British lawmakers have urged Theressa May’s government to address the status of cross-border pensions and insurance contracts after Brexit, saying these are on a clock and the time to make changes that ensures people continued to be paid was running out.
Although Britain is set to leave the EU only on March 2019, insurers are getting edgy given the length of the legal process involved along with the fact that they need to know by November whether they must move contracts with EU customers out of Britain.
“The possibility that UK providers may not be legally able to pay out pensions or insurance contracts to citizens in the EU – including UK expats – is a stark example of the consequences of a ‘cliff edge’ Brexit,” said Nicky Morgan, who chairs parliament’s Treasury Committee.
As per Morgan, if May’s government fails to take the necessary steps, British insurers will lose the legal authorization to service hundreds of thousands of contracts that extend beyond the date when Britain leave the bloc.
“Citizens …living in the rest of the EEA (European Economic Area) in receipt of personal pensions may face difficulties in getting paid,” said Morgan in a letter to British finance minister Philip Hammond.
She went to add, UK residents, many EU citizens who live in UK, who receive pensions from EEA-based providers will find themselves in the same pickle.
Morgan has called for May’s government to outline what steps were being considered to preserve the stability and continuance of insurance contracts that straddle Brexit.
Insurers have asked regulators that they be allowed to start working on a mechanism that would allow existing contracts to continue operating after Brexit, in a process known as “grandfathering”.
Without this mechanism, insurers would have to relocate EU customers contracts to a new EU subsidiary after 2019 so as to ensure that they remain within the same jurisdiction as the customer, failing which they will have to sell that portion of their business.