Is your insurer Brexit-proof?

18 February 2019

Work with your construction insurance broker to ensure coverage even if there’s a no-deal Brexit

Not all developer and contractor insurance providers will be legislation-compliant on 29 March 2019, when the UK is scheduled to leave the EU. Adequate construction insurance coverage is crucial for contractors, developers and owners. To ensure they are covered effectively, insureds are advised to be proactive.

How financial services are affected by a no-deal Brexit

The European Union (Withdrawal) Act 2018 has been enacted for the purpose of transferring certain EU law, including relating to Financial Services, to the UK statute book on the date the UK exits from the EU (currently scheduled to take place on 29 March 2019).

However, that Act is not all encompassing and, in a ‘no deal’ scenario, the position of UK firms in relation to the EU will, in many cases, be determined by a combination of the relevant member state rules together with any applicable EU rules in relation to third countries (being countries outside of the EEA – which the UK will become on exit) at that time.

The UK will also, in turn, generally default to treating EEA states and EEA firms largely as it does other third countries and their firms. However, the government has confirmed that certain legislation (as to which see below) will be introduced to help minimise disruption to financial contracts, including insurance contracts.

Brexit: Construction insurance coverage and the law

In order to obtain the most effective coverage, insureds should be aware of the following. Construction insurance brokers can clarify how the following legislative changes affect developers’ and contractors’ insurance.

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Temporary Permissions Regime (TPR)

The TPR has been introduced by the UK to enable EEA firms currently passporting into the UK to continue operating in the UK for up to three years after exit, while they apply for full third country branch authorisation from UK regulators.

This means that EEA-based firms which currently passport into the UK can, if they apply under the TPR, continue to conduct both new and existing regulated business within the UK if the UK leaves the EU on 29 March 2019 without any transition period in place.

Firms will need to notify the FCA whether they wish to enter the TPR. The notification window closes at the end of 28 March 2019; firms that have not submitted a notification will not be able to use the TPR.

Firms that do not notify the FCA that they wish to use the TPR may, where they meet the relevant conditions, be subject to the proposed new financial services contracts regime (see below).

Details of firms and investment funds with temporary permission under the TPR will be shown on the FS Register.

Financial Services Contracts Regime

The government recently published draft legislation for the post-Brexit financial services contracts regime (FSCR).

This draft legislation will be relevant where EEA firms which currently passport into the UK to conduct a regulated activity here (such as broking or underwriting insurance) fail to notify the FCA that they wish to enter the TPR or do not secure authorisation under the TPR, but still have regulated business in the UK to run off following the UK’s departure from the EU. This is because the proposed FSCR will in effect provide EEA firms with the right to manage such run-off for a limited period.

Under the draft legislation, the FSCR will be time-limited depending on the type of regulated activity being performed: as currently drafted, it is anticipated to apply for a maximum of 15 years for insurance contracts. However, it is possible that HM Treasury will extend the stipulated periods, if necessary. Firms benefitting from the FSCR will be required to remain authorised in their home state and must notify the FCA if their authorisation is cancelled or varied.

The draft FSCR rules provide permission solely for the performance of pre-existing contracts. Although the drafting is not entirely clear, our expectation is that this includes permission for variations to those contracts such as period extensions and changes in sums insured.

Reciprocal Temporary Permissions

As we get closer to 29 March 2019, there is evidence slowly emerging that some EU states are considering legislation of their own to allow UK firms to continue to service existing policies issued in other EU states. However, this is likely to be restricted to policies incepted prior to Brexit.

Contractors, developers and owners: What to do if your insurer is not yet Brexit compliant

Where it is identified that an insurer may not be Brexit-proof, ensure your broker is doing the following:

Talking to the affected insurer about:

  • Their plans for future underwriting
  • Whether they have any obligations under any applicable Brexit continuity clause or similar provision.

Talk to an expert

For further information please contact Andrew Thornton, Construction, Senior Partner on +44 (0)20 7528 4489 or email