A £21bn net surplus in insurance sales to the European Union means the UK should vote to remain within it, despite the impact of Brussels-based solvency and gender pricing rules says the Association of British Insurers.
Commenting on the Prime Minister’s interview on the Andrew Marr show over the weekend, in which David Cameron said a Brexit would see the financial services sector lose preferential access to 500m consumers, ABI director general Huw Evans said net insurance exports would be hit were the UK to vote to leave the EU.
The warning for the insurance industry came as Cameron said a vote for leave would lead to a £20bn to £40bn black hole in the UK’s finances that could lead to the triple lock on state pension being scrapped. The triple lock guarantees that state pension will increase in line with at least earnings, prices or 2.5 per cent a year.
EU insurance rules have been regularly criticised by the Leave campaign. Former work and pensions secretary of state Iain Duncan Smith has warned that EU solvency rules could foist a £400bn solvency regime on UK occupational pensions, were DB schemes required to adopt insurance-style reserving systems. The Society of Pensions Professionals (SPP) says this burden could be avoided, although were the UK to join the European Economic Area (EEA) then the adoption of EU pensions legislation might still be required. Norway is a member of the EEA and does not have to abide by EU insurance directives, but Switzerland, which is also an EEA member, is bound by them. The SPP says UK DB schemes represent 70 per cent of all DB liabilities within the EU.
The European Insurance and Occupational Pensions Authority (EIOPA) recently shelved plans for new solvency requirements for pension schemes, but is proposing to push ahead with a new reporting regime that would cost £167m a year to administer.
The EU is responsible for legislation on gender neutral pricing for insurance products, which has meant annuities must be written on a gender-neutral basis. Introduced following a legal challenge brought by Test-Achats, a Belgian consumer organisation, experts say the rule change will have increased costs for consumers as insurers have to insure against getting ‘too many’ customers from the gender more expensive to insure – young men in the case of motor insurance and women in the case of annuities. However the SPP says it is unlikely that any mainstream politician would want to unravel gender-neutral pricing following a successful vote for Leave.
Cameron said: “In the European Union we get free access to 500 million consumers. Our pension promise is based on a thriving and growing economy. If we did have a £20bn to £40bn black hole would have to make difficult choices.”
Evans said: “The Prime Minister is right to note the strong support from the insurance and long-term savings industry for remaining in the EU. We sell £21 billion more in insurance and savings products to the rest of Europe than they buy from us, which helps create jobs and prosperity here in the UK.
“Supporters of a Norwegian-style option should heed the warnings coming from Norway itself. Norway’s insurance leaders say the UK has a better deal at the heart of the EU than Norway does – since Norway is always outside the room where the big decisions are taken.”