General Election 2017: a May Day wash out

In April 2017, the Conservatives’ 24-point lead in the polls proved too tempting for Theresa May, who finally took the decision to call an early general election after months of speculation. Despite a strong early lead, the Prime Minister’s decision started to look risky as the campaign rolled into its final weeks and the gap between the Conservatives and Labour narrowed to single-figure margins. The polling shift was largely due to the considerable number of new voters engaged in the political process for the first time and the squeeze of the smaller parties, notably UKIP whose vote share collapsed.

Today the Prime Minister will be realising the full consequences of this risk, after losing 12 seats and reducing the Conservatives presence in the House of Commons  to 318 seats overall with one seat to declare this evening.  At this number, the Conservatives are still the largest party in Westminster, have polled the highest number of votes (43%) but they cannot command an overall majority on their own, falling short of the necessary 326 seat threshold.

In order to command the confidence of Parliament, Theresa May this afternoon announced on the steps of Downing Street that she will seek to enter an agreement with the Democratic Unionist Party (DUP) and thereby attempt to form a minority government.

Current result*: Conservative minority government

*Kensington & Chelsea is yet to declare, with the result expected this afternoon

What happens next?

What about Brexit?

The Brexit negotiations are formally due to start on 19 June (the same day as the scheduled Queen's Speech) and may now be delayed. We should know more over the coming days.

We wait to see how or if the Conservative Party’s agreement, if any, with the DUP will alter The Prime Minister’s  stated priorities for the UK in the negotiations. She may now have to commit to unintended concessions or compromises in order to get an exit deal over the line, knowing she now that she too has to rely on the DUP to maintain her government.

For the EU, the order of Brexit talks will remain a priority. Its focus will be on pinning down the sequencing of the negotiations in line with the European Council Negotiation Guidelines adopted on 29 April. As part of its approach, the European Council has been clear that unless its priorities for the first part of negotiations (withdrawal agreement) are achieved, then further discussions on the next phase of negotiations (future UK-EU relationship) cannot take place.

At this early stage, the talks will focus on the process of negotiations, timetable for talks and establishing the UK’s ‘exit fee’. As a result, it is not possible to forecast when specific themes will arise such as discussions over financial services.

What does it mean for the insurance sector?

The Conservative Party manifesto “Forward Together” set out Theresa May’s plan for a more interventionist government. It was a stark departure from the approach of her predecessors. For the business sector, the approach suggested that the government intended to take a far more active role in any markets that are deemed to be failing consumers, with announcements, such as the enactment of the energy sector price cap.

For the insurance sector specifically, this approach suggested that Whitehall departments and the financial regulators intended placing increased scrutiny on areas such as pricing at the point of renewal and the treatment of consumers, particularly in retail markets. More broadly, the insurance sector risked being caught by Theresa May’s push to achieve additional corporate governance across all sectors, with reviews initiated by her previous government - such as the Corporate Governance Green Paper intended to be continued as part of this revised agenda for business.

It now remains to be seen how or if any Conservative minority government’s agreement with the DUP impacts this agenda. Today’s result also creates further uncertainty for not only insurance but also more broadly for the financial services sector.

Finally, for those insurers operating in the motor and casualty sectors the result of the general election may be bad news.  Reforms long sought by such insurers were controversial - including those relating to “whiplash” and the personal injury discount rate.

It is possible that any minority government formed will have one eye on recent history. In 1974, the minority government formed by Prime Minister Harold Wilson lasted just eight months. There is a risk that in the coming months, all parties will be wary of controversy in case it creates a toxic optic for any anticipated, imminent election campaign.

In those circumstances, will the insurance sector need to wait for a more stable government, before such reforms can be pursued further?

Related items:

• Whiplash reforms and driverless cars technology to fall
• Great Repeal Bill: the long and winding road to Brexit
• Visit our Brexit focus area for latest updates