FCA Seeking Legal Clarity on Business Interruption Insurance

The FCA has announced that it intends to seek legal clarity on business interruption (BI) insurance to resolve doubt for those businesses who are facing uncertainty on their claims.

The regulator seeks to bring to court what it believes are “the key relevant cases which provide the greatest clarity on specific policy clauses as soon as possible to get an independent view on these disputed BI insurance policies if there remains unresolved uncertainty.” Cases that are placed before the court will be carefully chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty.

The FCA is also proposing a series of measures to support both consumers and businesses who hold insurance products and who are facing other issues as a result of the coronavirus pandemic. These measures set out the FCA’s expectations for insurance firms which are that they should consider whether their products still offer value to customers in the current situation and whether they can be doing more for those experiencing a financial impact because of coronavirus.  

The additional insurance guidance proposals are intended to provide consumers with temporary support in the light of the exceptional circumstances arising from coronavirus and follow steps the FCA has taken in other markets such as credit cards, overdrafts and personal loans.

This package of measures sets out how the FCA expects insurance firms to:

  • Ensure products continue to offer value and are appropriate for customers taking into account the impact of coronavirus taking into account the firm’s ability to deliver the benefits promised.
  • Help individual customers who may be finding it difficult to pay their insurance premiums or meet their premium finance payments as a result of coronavirus.

Expectations of Firms

Where policies do not respond to the current situation, all general insurance firms are nonetheless expected to meet their obligations under Principle 6, ICOBS and DISP when handling claims and any complaints arising from them.

They are expected to communicate clearly and sympathetically to their customers at all times. General insurance firms might also consider what other help they could give their customers at this point – signposting to other potential sources of support, for example.

The FCA expects firms to communicate clearly to their customers regarding their approach and decision. Furthermore, where they receive any complaints, these should be promptly and appropriately investigated. The FCA also continues to cooperate closely with the Financial Ombudsman Service throughout this process.

Interim Chief Executive of the FCA, Christopher Woolard, has said: ‘We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.’

‘Our [the FCA’s] intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.’

‘In addition to this court action, the current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value. Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers. Today’s proposed guidance and statement aims to make our expectations clear to all firms in the insurance market and provide future certainty.’

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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