The government has admitted Brexit may leave insurers in the dark on whether they are breaking the law or not.
In a letter to Treasury Select Committee chair Nicky Morgan, chancellor Philip Hammond said the government was aware that payments under cross-border insurance contracts could be illegal when Britain leaves the EU.
The government is alive to the risk that the UK's withdrawal could in some cases create legal uncertainties as to the status of existing cross-border insurance, pension and other financial services contracts sold under passporting arrangements.
This could affect both UK and EU financial services firms and their customers.
Last month, Morgan wrote to the chancellor saying ministers must act to prevent insurers being forced to either break the law or break customer promises post-Brexit.
In the absence of any specific agreement on Brexit day, passporting will end and insurers will lose the legal authorisation to service contracts. Hundreds of thousands of contracts sold into the EU from the UK – or vice versa – may be affected, Morgan warned.
But in his response, Hammond sought to play down Morgan's fears, saying: "There is a shared interest for both the UK and the EU in ensuring that we avoid outcomes that impose unnecessary costs and disruption on individuals and businesses as the UK leaves the EU."
Breaking the law
Hammond's response echoes comments made previously by the director-general of the Association of British Insurers. Huw Evans said finding there was a "shared challenge" for both the EU and the UK to find a solution.
Without a resolution insurers will face a choice between breaking their promise to customers or risk breaking the law. It must not come to this.
Meanwhile, in the letter released today Hammond wrote: "The government is clear that, whatever the ultimate outcome of the negotiations, an integral part of delivering our withdrawal will be the negotiation of a time-limited interim period, to provide certainty and avoid a cliff-edge for business and individuals during the transition from the current structures of membership to the new relationship."