The UK is known as the largest insurance industry in the EU and the 4th largest in the world. According to the London Market Group, over GBP 9 billion of premium is brought annually to the London Insurance Market by brokers on behalf of EU clients. So, up until now, the UK has been a leading exporter of insurance to the EU and the rest of the world.
However, it is almost a year since the UK left the EU and entered into a transition period which ends on 31 December 2020. After the transition period, the UK will be treated as a third country by all the EEA member states, including Lithuania.
Brexit means that insurance intermediaries based in the UK and which used to do business in the EEA will lose their passporting rights and will not be able to do business on the basis of Freedom of Services in the EU.
How to retain access to the EEA
UK intermediaries that want to retain access to the EEA market can acquire an authorised intermediary or set up an insurance intermediary company in any EEA member state, such as Lithuania. Lithuania is the largest Baltic state with the biggest insurance market in the Baltics and offers a particularly attractive regulatory environment for insurance market participants. Once established in Lithuania, an intermediary can further rely on passporting rights to the other EEA member states.
Options for UK-based insurance intermediaries in Lithuania
Generally, two types of insurance intermediaries operate in Lithuania – insurance agents and insurance broker companies. Currently, Lithuania has 101 active broker companies.
If a UK-based insurance intermediary decides to set up business in Lithuania, its first move would be to choose whether to do so as an agent or as a broker company.
How do broker companies compare with agent companies
1. How long does it take to set up a company in Lithuania?
A company (both agency and broker company) may be established within 1-2 weeks from receipt of all necessary documentation.
2. Must an entity demonstrate a physical presence in Lithuania?
Broker company: Yes. An entity should prove a physical office and employ at least one insurance broker.
Agency: No. Digital incorporation is allowed. But a Lithuanian registration address is required.
3. Is this activity licensed?
Broker company: No. But legal entities must enrol on the list of broker companies maintained by the regulator.
Agency: No. But legal entities must be registered on each represented insurer’s list of agents.
4. How long does it take to register on the list?
Broker company: An entity may be registered on the list of broker companies within 3 months. But in practice it usually takes up to 2 months, so long as the documents produced are in order.
Agency: The time for registration on the list of agencies maintained by the represented insurer depends on the insurer’s internal procedures.
5. Is some pre-application stage required for registration?
Broker company: Yes. A meeting with the regulator should be organised to present a business plan and arrange preliminary agreement on the business model.
Agency: No. The regulator is not involved in registration with the insurer.
6. Is a fee payable for entry on the list?
Broker company: Yes. Currently, the state levy for entry on the list of broker companies is EUR 201.
7. Can an intermediary distribute the same insurance products from different insurers?
Broker company: Yes.
Agency: No. An agent company cannot offer analogous or similar insurance products from different insurers.
8. Can an intermediary engage in other activities?
Broker company: Yes, but this is limited. A broker company can engage only in distribution of insurance/reinsurance or pension fund products, valuation of property and other financial services.
Agency: Yes. An agent may carry out insurance distribution as principal or ancillary activities and engage in other activities as well.
9. Are there any requirements for authorized capital?
Broker company: Yes. Authorized capital should not be less than EUR 19,510 or 4 % of the insurance premiums received by the broker company to be paid to insurers during the financial year, whichever is higher.
Agency: No. But minimal capital of EUR 2,500 applies for setting up a new company.
10. Are there any requirements for PI insurance cover?
Broker company: Yes. The minimum sum insured must be EUR 1,300,380 per insured event and EUR 1,924,560 for all insured events per year.
Agency: Yes. The same limits apply as for a broker company, or insurance coverage may be provided by the insurer on whose behalf the agency acts.
11. Is collection of insurance funds specifically regulated?
Broker company: Yes. A broker company must open a segregated bank account to collect insurance funds from insurance clients as well as funds from insurers assigned for indemnity payments.
Agency: No. But insurance premiums paid to an agent are treated as having been paid to the insurer.
12. Are there any reporting requirements?
Broker company: Yes. A broker company must file quarterly and yearly statistical, financial, complaints-related and other relevant information to the regulator.
13. Are there any requirements for the founders, management and CEO?
Broker company: Yes. All must be of good repute. The CEO also must have qualifications and experience necessary to properly perform their duties.
Agency: No. But represented insurers may apply their own professional standards for agents.
14. What are the requirements for personnel?
Broker company: At least one employee must have passed the insurance broker’s qualifying exam and be a member of the Chamber of Insurance Brokers. Employees directly engaged in insurance distribution activities must be of good repute and meet knowledge and eligibility requirements (eg, training, absence of criminal liability).
Agency: Employees directly engaged in insurance distribution must meet knowledge and eligibility requirements (eg, training, absence of criminal liability).
15. Possibility to outsource functions back to the UK
Broker company: Yes. Certain functions are required in Lithuania but outsourcing may take place.
Agency: Yes. In principle, agents may operate as a digital insurance intermediary.
Please note that this list does not provide a complete list of the applicable requirements.
Company relocation to Lithuania: success stories
In addition to regulatory advantages and having the largest insurance market in the Baltics, Lithuania is also open and business-friendly for new companies desiring to enter the market. Among the most recent success stories is the fintech market – numerous fintech companies have already taken the opportunity to transfer their business to Lithuania and benefit from the supportive regulatory environment.
Some major fintech clients whom we helped to establish in Lithuania:
Notably, Lithuania is the only Baltic state where Lloyd’s acts on an establishment basis. In 2013, we helped Lloyd’s to set up operations in Lithuania. Some international insurance broker companies such as Aon and Marsh are also present in Lithuania.
Our Insurance team is ready to advise on any regulatory, registration or other relevant matters related to transfer of business to Lithuania. We will help identify the best business model option and offer support from company establishment and registration to the launch of company operations.