FCA Update on Business Interruption Claims

The FCA has provided an update on the progress of its court action on business interruption (BI) insurance policies. We reported in May that the FCA was seeking legal clarity on BI insurance to help resolve doubt for those businesses facing uncertainty on their claims.

Since it made its last announcement, the regulator has approached 56 insurers and reviewed over 500 relevant policies from 40 insurers. A sample of 17 policy wordings has been identified that capture the majority of the key issues that could be in dispute.

The FCA has published a (non-exhaustive) preliminary list of affected insurers and policies. Go here to access the list: https://www.fca.org.uk/publication/corporate/preliminary-list-affected-insurers-policies.pdf

Draft guidance has also been published which sets out the regulator’s expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during this test case.

The guidance (which you can read in full here) highlights the particular steps that firms should be taking to:

  • identify the potential implications of the test case on their decisions to reject claims
  • keep policyholders informed about the test case and its implications for policies, claims and any settlement offers
  • treat policyholders fairly when the test case is resolved

A list of all the relevant insurers and policies that may have impacted wordings is expected from the FCA in early July.

The regulator states: “Our view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. This case is focused on the remainder of policies that could be argued to include cover.”

Policyholders should also not assume that inclusion of their policy wording in this case will mean their policies are responsive. The outcome being sought is clarity as to which business interruption policies respond to the pandemic, and which don’t.

Interim Chief Executive of the FCA, Christopher Woolard, has said that, “The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike. We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market. The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.”

The FCA has set out its next steps and expects that a five to ten day court hearing will take place in the second half of July.

For further information and guidance on the FCA’s response to the coronavirus outbreak, go here: https://www.fca.org.uk/coronavirus

About the author

Ash is Managing Director at RWA. He has over 15 years’ experience in the legal and compliance field and ten years in broker sales and leadership roles in national and global insurance firms.

He is highly skilled in the application of risk-based regulation, working closely with businesses at executive and board level to develop commercially viable, compliant systems and controls. Ash is adept in providing solutions-based interpretations of the FCA’s technical standards and facilitating the transfer of compliance skills and education needed for businesses to self-manage their own compliance and training needs.

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