The United Kingdom and the European Union reached a post-Brexit trade agreement on Dec. 24, 2020. It is expected that this agreement will be ratified by the EU parliament in short order. The Brexit deal cleared the House of Commons on Dec. 30 and will be voted on by the House of Lords on its way to becoming law. The new agreement establishes the go-forward terms of a trading relationship valued at over $900 billion.
The U.K. formally left the EU single market and customs union on Jan. 31, 2020. The U.K.’s “transition period” ends on Dec. 31, 2020. The U.K. will be deemed outside the European Economic Area (EEA) as of Jan. 1, 2021.
Lockton is prepared for this change. Since 2016, we’ve engaged with regulators, trade bodies, politicians and insurers to prioritize continuity of client service through an unprecedented change in the European political and economic environment.
What potential changes will affect my employees?
EU citizens working in the U.K. may qualify for "settled status," enabling them to continue working in the U.K. Rules pertaining to U.K. citizens working in the EU are broadly similar, offering permanent residency pathways through the transition period to those residents in European countries who apply to the local government by Jun. 30, 2021. Those looking to move into the EU after the transition period ends on Dec. 31, 2020 will be subject to each country’s immigration regime with no certainty yet about free movement or onward movement within the EU. All foreign nationals should be identified, and through Human Resource channels, should be contacted to discuss the potential impact of these new regulatory changes to employment contracts.
Employment of EU nationals
The U.K. will establish a new immigration system from Jan. 1, 2021 that puts EU and non-EU immigrants on equal footing. Employers who will recruit EU nationals in the future will need to obtain a sponsor license. The government has issued related guidance on this.
Employers cannot require employees to show their status under the EU Settlement Scheme until after Jun. 30, 2021, but they should consider sharing information about the scheme with their employees. The government has published an employer toolkit for this purpose.
Employee Benefits and Travel Insurance
EU citizens are entitled to access medical treatment freely from anywhere within in the EU. The U.K.'s departure from the EU may bring this to an end, potentially affecting employee benefits and travel insurance arrangements.
Social health insurance
The Brexit deal announced on Dec. 24 states that all European Health Insurance Cards (EHIC) issued to U.K. individuals before the end of 2020 will remain in force until their expiration date. The U.K. intends to establish a reciprocal healthcare agreement with the EU and issue a new U.K. Global Health Insurance Card (GHIC) to U.K. residents, but there is no information available yet on this arrangement.
Private health insurance
No change. U.K. private health does not cover care outside of the U.K. unless the coverage includes an international coverage extension. This extension, available on a voluntary basis to U.K. employees, is recommended.
Life and disability
U.K. life insurers do not cover non-U.K. individuals on U.K. insurance programs. Exceptions might occur in the limited instances where an employee based outside of the U.K. is working for a U.K. business on a U.K. employment contract.
If there are instances where a personal accident policy is written out of the U.K. to an EU policyholder, this would need to be addressed and redomiciled separately within the EEA and U.K.
What potential changes will impact insurance purchasing?
Insurance procurement and distribution is highly regulated in the EU. Most countries regulate and restrict buyers of insurance from purchasing “non-admitted” insurance.
While many U.S.-based policyholders with incidental EEA Insurance requirements will have limited exposure to these changing regulations, a careful review of global, U.K.-EU and cross-border insurance contracts is necessary.
What immediate steps should be taken to address changes to insurance purchasing?
Identify “direct” EEA policies to ensure an EEA authorized broker is engaged in the placement and service on a go-forward basis, if this is not already the case.
This includes U.S. clients with European Corporate Domicile, such as Amsterdam, Luxembourg, Dublin, etc., where the first named insured is the European Corporate Parent.
Ensure any U.S.-based multinational insurance programs covering EEA risk names a broker of record authorized in the EEA.
Note: Where procurement or service activity requires an EEA authorized broker, Lockton is licensed and authorized to engage through Lockton Insurance Brokers Ireland, Ltd. and Lockton European Brokers, Limited, or through any of our Lockton Global Partners in Europe.
How does this impact Freedom of Services?
Many global insurance programs, services and solutions are delivered to EEA-based multinational companies and EEA-based subsidiaries of multinational companies on a "Freedom of Services" basis.
These programs will continue to be permitted, so long as the policy holder is a business entity registered within the EEA and the program covers European-based risk.
FOS policies can be issued via an insurer based in any EEA country at the insured’s direction, or in cooperation with the insurer in accordance with their Brexit contingency.
Choice of law is permitted, subject to underwriter’s agreement.
Global insurance carriers have prepared for Brexit in different ways, such as by making use of the Temporary Permissions Regime, by using a delegation of authority from an EEA entity, or by transferring portfolios of insurance business from one entity to another using Part Vii of the Financial Services and Market Act 2000. Individual carrier provisions should be reviewed for compliance.
Non-EEA authorized brokers will not be able to provide the following services:
Sending invoices direct to EEA Policyholders
Gathering information direct from EEA Policyholders
Handling claims made by EEA Policyholders under EEA Policies
How will the U.K. be treated under the EU General Data Protection Regulation (GDPR)?
U.K. organizations that process personal data are currently bound by two laws, (1) EU GDPR and (2) U.K. Data Protection Act. During the Brexit transition period, EU laws (including EU GDPR) continue to apply in the U.K. However, as of Jan. 1, 2021, the U.K. will become a “third country” — a term used by EU legislation to describe jurisdictions that are not part of the EEA.
While the EU GDPR will no longer apply directly, the U.K. is set to adopt mirroring regulation known as “U.K. GDPR.” The current proposed trade agreement does not make a determination as to whether the U.K. provides an adequate level of protection for personal data to continue to transfer from the EU, but it establishes a “Specific Period” of up to 6 months during which personal data can continue to flow from the EU to the U.K. without additional protective measures.
What about London Wholesale business?
London Wholesale placements to EEA Policyholders covering EEA risks will require the engagement of a licensed EEA broker.
A Policyholder, who is not an entity registered within the EEA, but who may have some EEA exposure, can still be placed and serviced through London/non-EEA authorized broker.
An EEA-based Policyholder with EEA-based risk must now have insurance placed and serviced by an EEA authorized broker.
If local EEA paper is not issued as a part of the transaction, then engaging an EEA authorized broker is not necessary, so long as it is permitted by the insurer.
The impact on the U.K. Financial Services Industry will be considerable and is evolving under the terms of the new U.K.-EU agreement. Lockton is monitoring this closely and will continue to provide further guidance as the situation evolves.
Reference - EEA Countries
Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden (which all form part of the European Union) plus Iceland, Liechtenstein and Norway