The shock vote to leave the EU has flung the UK into confusion and the insurance industry is no exception.
The assumptions of 43 years have been turned upside down and nobody really knows what will happen next.
While the Conservative and Labour parties plunge into open political battle, most in the protection industry have been sitting nervously on the sidelines wondering what this revolutionary moment means for them.
The immediate aftermath has been bloody for the big UK insurance companies, which have been among the biggest stock market losers.
Legal & General Group, for example, saw its share price collapse a shocking 20.26% on Friday, followed by another 12.47% on Monday.
Aviva was another big victim, falling 15.68% on Friday and then another 7.63% on Monday.
Prudential, which you might have thought was shielded by its growing exposure to Asia, fell a “mere” 10.53% on Friday and 9.09% on Monday.
Markets clearly believe insurers will number among some of the biggest Brexit losers, even if their overseas earnings will be worth more when converted back into sagging sterling.
Insurance companies are keen to reassure investors and customers that the outlook is brighter than markets appear to believe, and a sharp revival in insurance and banking stocks on Tuesday, which saw Aviva rise 9% in early trading, suggests that confidence could be returning.
Aviva rushed out a statement saying that it does not expect the result to have “any significant operational impact on the company”.
It emphasised that its operations in the UK and its other subsidiaries in the European Union are well-capitalised and will continue to trade as normal.
Surplus capital stood at £9.7bn at the end of 2015 and its solvency ratio at 180%, the company said in a statement.
Brexit may be a blow but it will be far from mortal for the company as the hard work since the financial crisis starts to pay off: “Aviva has one of the strongest and most resilient balance sheets in the UK insurance sector with low sensitivity to market stress and over the last four years has tripled its economic capital surplus,” the insurer said.
The statement also pointed out that the technical implications will only become clear “after several years of negotiating a new relationship between the UK and the EU”.
Some might find that reassuring, others may be concerned that the uncertainty is set to drag on and on, which of course it will.
A spokesperson for Swiss-based insurer Zurich, which operates in more than 170 countries and territories, reassured its suddenly isolated UK division that it still figures in the company’s plans.
The statement reassured embattled Brits that “the UK is a key market for our business globally” and added that: “While some customers may be worried about what this means for their policies or investments, we remain committed to our customers, distributors, communities and employees in the UK.”
Again, uncertainty is the order of the day, with Zurich admitting that it is too soon to say what effect Brexit will have on its business, and we may not know for several years.
Specialist insurers and brokers are reassuring themselves that protection will be among the least affected areas of UK financial services.
The most significant piece of EU legislation to affect the UK protection industry in recent years was gender-neutral pricing.
This was introduced in December 2012 and although it attracted some grumbling at the time the industry bedded in the change with commendable ease, and any reversal would seem unlikely even if the UK does completely break with the EU.
Two other key areas of EU legislation affecting financial services, the Mortgage Credit Directive (MCD), now enshrined in UK law, and the Markets in Financial Instruments Directive (MiFID), which sets up harmonised regulation across the EU, primarily apply to mortgages and investments respectively rather than protection.
On Friday, the Financial Conduct Authority (FCA) issued a statement saying that the UK regulatory framework, which mostly derives from EU legislation, remains wholly in force: “This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament.”
Not only do firms have to abide by existing laws, they also have to continue with implementation plans for legislation that has still to come into effect over the next two years, a process that could increasingly feel like a waste of time.
Steven Cameron, pensions director at insurer Aegon, questions the point of working to introduce legislation that might prove short lived, including MiFID, which has a delayed implementation date of January 2018, the Insurance Distribution Directive (IDD) and the Packaged Retail Insurance Based Investment Products (PRIIPs).
Cameron says: “While the FCA has indicated firms should continue to implement these too, we would urge a thorough examination of whether each individual proposed change adds value for UK savers long term.
“Some may be needed as part of new trade agreements but others may tie up time and resources which might be better spent on longer-lasting initiatives.”
Cameron also points out that the UK government also has a number of significant financial services proposals underway, including the Treasury’s plans for a Lifetime ISA and a secondary annuity market.
He warns that these might now be delayed unless some key aspects can be finalised very soon, with a real risk that an April 2017 implementation will no longer be feasible.
Aegon has also warned that the Pension Bill to introduce new master trust rules, announced in the Queen’s Speech, could be derailed.
Cameron called on the Government to give an early indication of its plans.
“Unless we get more detail very soon, the April 2017 introduction looks very challenging,” he says.
He also suggested that the state pension triple-lock could be at risk and called for “a truly long-term perspective in areas such as pensions”.
“We would also caution against any radical changes such as a major overhaul of pension tax relief, which would run contrary to the wider desire to offer stability where possible,” Cameron says.
The biggest impact on protection could come as a knock-on effect from the mortgage market.
If the housing market slows then protection sales could fall, as so many are sold alongside a mortgage or remortgage.
Jeremy Leaf, a former chairman of the RICS chairman and now a north London estate agent, says that although house hunters are a little nervous he has seen no evidence of plans to withdraw from transactions or renegotiate offers to date.
“The underlying fundamentals of the UK economy remain strong and the overwhelming majority of our customers are telling us they’re relieved to get the uncertain period leading up to the vote behind them – so it’s business as usual.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, agrees that little will change in the short term.
“Mortgage availability is good, banks still want to lend and interest rates are at an all-time low,” Harris. “The remortgage market is likely to continue to be aggressive with some competitive deals to attract borrowers, particularly as the likelihood of an interest rate rise has been pushed further back.”
Yet he admits the uncertainty will knock confidence and deter people from making decisions to move.
“Those who were thinking about buying property may now decide to leave that decision to, say, next year, in the hope that property prices will fall in the meantime,” Harris says.
According to Harris, the luxury end of the housing market may be hit relatively hard. “Some buyers may try to renegotiate deals that have already been done but on the other hand if sterling looks cheap it may attract more overseas investors,” he says.
Daoud Fakhri, principal analyst at advisers Verdict Financial, notes that banking and housebuilding stocks have been the biggest losers of recent days, which suggests the housing and mortgage market will be hit harder than many in the property industry would like to admit.
“Demand for home finance will inevitably be dented, as consumers react to the uncertainty generated by the vote by postponing major spending decisions,” Fakhri says.
Fakhri believes the short-term impact on mortgage pricing is also unclear.
“The Bank of England may decide to cut the base rate in an effort to forestall a negative shock to the economy, which will help stabilise current pricing regimes,” he says.
Fakhri predicts a temporary rise in remortgaging activity with a number of cheaply priced fixed-rate deals on the market.
“Many borrowers may want to rush into the best deals, fearing their imminent withdrawal,” he says.
The danger is that the pound will fall so sharply against the dollar and other major currencies that the Bank of England may be forced to raise rates.
“This will feed through to more expensive home loans and further dampen activity,” Fakhri adds.
The protection and financial services industry is likely to bounce between highs and lows of hope and despair over the months to come.
For them, the most important factor will be retaining tariff-free access to the European single market, which may still be an option under what is now known as the Norwegian option, but only if the UK is willing to accept freedom of movement in return – something many Remain voters were adamantly against.
German carmakers and other leading European manufacturers will not want to lose access to the profitable UK market, especially given our large trade deficit.
This could prove our best hope: in the meantime the protection industry – like the rest of the country – faces uncertainty piled upon uncertainty.