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Proactive Brexit Preparations Promise Seamless Service for Insureds

Plan ahead for this major European shift to limit your multinational exposures.
By: | April 10, 2018 • 5 min read

Since the day the term was coined, “Brexit” has been synonymous with complexity and uncertainty.

UK businesses don’t fully know what to expect once the break becomes final, but U.S. multinationals may feel even more in the dark. Unlike in the UK, media coverage of developments is sporadic in the U.S.

After UK voters decided to exit the European Union in a referendum held on June 23, 2016, the UK government triggered Article 50 on March 29, 2017 — the only law governing the process of separation. Article 50, signed at the Treaty of Lisbon in 2007, gives any member of the EU the right to leave the Union and allows the seceding nation two years to negotiate an exit deal.

With one year down and one still to go until the Brexit becomes final, nothing is yet set in stone.

“Two years is simply not enough time to unravel the decades spent working in a single market,” said Lulu O’Leary, Major Initiatives Office Director, AIG. “The decision was made with very little legislation in place to set a foundation for how this process would go. There was no real framework for what would change and how.”

Over the past year, leaders, legislators and regulators have hashed out initial negotiations around past ties and commitments regarding trade and immigration, but much work remains.

Acknowledging this, negotiators will spend this year building a provisional transition agreement to be ratified in Q4 2018 or Q1 2019 and become legally binding when the break is official in March, 2019. This proposed transition agreement would essentially establish a ‘standstill,’ during which time whatever is in place — immigration rules, financial regulations, trade arrangements — would remain that way while discussion around the details continues.

The timeline above demonstrates how the process will move forward over the next year.

“The Article 50 withdrawal agreement will include transitional arrangements along with a framework for a future trading relationship and key terms for unwinding the UK’s past ties and commitments,” O’Leary said. “But as the EU’s chief negotiator Michel Barnier often repeats, nothing is agreed until everything is agreed.”

While the provisional agreement extends the timeframe to finalize negotiations, it’s no reason for companies to rest on their laurels or stall contingency planning. Many regulatory questions still await an answer.

The Impact of Reinstated Regulatory Barriers

Lulu O’Leary, Major Initiatives Office Director

While any legal decisions are far from final, there are a few regulatory changes set to complicate the way multinational companies do business.

Loss of Freedom of Establishment and Freedom of Services may require institutions to create entirely new procedures to transact international business legally. Freedom of Establishment grants insurers the right to establish a network of branches or subsidiaries in other EU member states outside the UK and underwrite local risks from those offices. Freedom of Services also gives financial institutions the right to sell services across the EU without regulatory barriers. In the financial services sector, these ‘passporting rights’ are a key building block of what creates the single open market within the European Economic Area (the “EEA”).

Without these rights, UK-based insurers will typically no longer be able to write coverage for risks located in EU member states. It should remain possible for a UK insurer to have branch in an EEA country to write risks located there, but that branch would have to be fully capitalized and prudentially regulated by the local regulator. The ability to conduct cross-border business will depend on the relationships established between the UK’s Prudential Regulation Authority and Financial Conduct Authority and regulators throughout the EU.

Although the UK government has shown some willingness to be flexible around enabling EU insurers who have written policies in the UK to continue to administer those policies on a cross-border basis following the expiry of transitional arrangements, the European Insurance and Occupational Pensions Authority (“EIOPA”) has so far remained rigid in its public statements around UK insurers’ ability to do likewise into the EEA. In a worst case, this could impact the ability to pay claims.

Nuno Antunes, Head of Multinational – EMEA

Multinational companies who rely on the London market to insure their entities and operations overseas throughout Europe may have to re-structure their programs to comply with revised regulations.

“Right now, a U.S. company can come to London and cover all of their risks throughout the UK and the EU with a single policy. Post-Brexit, that likely won’t be possible,” said Nuno Antunes, Senior Vice President, EMEA Head of Multinational and Captive Fronting, AIG. “They’ll have to place separate policies for UK and EU entities, written by insurers with proper jurisdictional authorization.”

“The general view is that a UK-based company will not be able to freely set up branches in Europe, or write business for the European market,” O’Leary said. “If UK-based carriers don’t restructure properly, they may not legally be allowed to pay claims on losses incurred in Europe once the separation is complete.”

Best-in-class carriers aren’t waiting to see how the negotiations play out. Even before the vote was decided, AIG began assembling a structure that would be resilient through the transition period and beyond, without disrupting customer experience.

A Resilient Restructuring

“Even before the referendum, we asked ourselves ‘How do we set up our infrastructure so we can continue to operate across borders in an environment where the existing legal structures may no longer be available?’” Antunes said.

To continue writing international coverage without freedom of establishment or freedom of services to fall back on, AIG recognized the need to establish a separate entity in Europe. Working with regulators in both regions, the company created two new firms — one based in the UK, and one based in Luxembourg.

The Luxembourg company, AIG Europe SA, includes 19 branches across Europe and will continue to underwrite European risks, while AIG UK will cover UK-based risks. This new structure is expected to be operational December 1, 2018.

“We will transfer our back-book of business – anything written or renewing by December 1 – into these new entities to ensure business continuity and contract certainty,” O’Leary said. “In other words, we aren’t relying on grandfathering rules. We are prepared for the hardest of Brexit scenarios.”

UK and Luxembourg regulators have already approved licenses for the two new companies. In early March, the High Court of England and Wales approved AIG’s plan for communicating the changes to its policyholders and other interested parties. The year ahead will involve working with regulators to create and license branches throughout Europe and preparing to operate from the two new companies.

“We’ve created a solution that’s seamless for clients. They can continue to work with us as they always have,” Antunes said. “We will have the flexibility to interact with clients how they want to interact with us and do what’s best for them in terms of the structure of their programs, in a fully compliant and legal way.”

Multinational corporations operating in the UK and Europe will have a laundry list of factors to consider as Brexit approaches, but their insurance coverage doesn’t have to be one of them.

“We haven’t shied away from the complexity and we have taken a leadership position in the industry in tackling Brexit head on,” O’Leary said. “Regardless of any political upheavals, AIG will be ready to serve our customers.”

To learn more, visit https://www.aig.com/brexit


This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.

AIG is a leading international insurance organization serving customers in more than 100 countries.

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.


In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.


Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”


How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.


One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]