Covid-19: FCA wants clarity on business interruption insurance

The Financial Conduct Authority (FCA) is to seek legal clarity on business interruption (BI) insurance in response to widespread concerns and uncertainty about the basis on which some firms are making decisions relating to the current pandemic

The action, which the FCA hopes will come before the courts shortly, is not intended to encompass all possible disputes, but should resolve some key contractual uncertainties. The cases placed before the court will be chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty.

The court action will not determine how much is payable under individual policies, but will provide the basis for doing so. 

The FCA is writing to a small number of firms seeking clarification about whether they are declining, or intend to decline business interruption claims. The FCA expects these firms to reply to it to clarify their position, by no later than 15 May. Based on the information obtained, the FCA will consider which firms to ask to join the court process.

Christopher Woolard, FCA interim chief executive, 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.’

Temporary support

In addition, 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 coronavirus.

Woolard said: ‘The current emergency has altered the value of some insurance products and we believe that insurers should be looking at 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.’

The additional guidance proposals are designed 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.

Coronavirus may be having a temporary impact on the extent to which consumers can use and access benefits from their insurance products. For example, boiler cover insurers may not be able to offer an annual service that is part of many policies.

Similarly, liability insurance may temporarily not be relevant for some businesses such as hairdressers, bars and restaurants that are closed as a result of government interventions linked to Covid-19.

In response, the FCA expects insurers to consider appropriate action. This might include changing how benefits are delivered, refunding some premiums or suspending monthly payments for a certain period of time. 

The FCA proposes to give insurers up to six months to assess this so that it can take into account effects of coronavirus in a more rounded manner.

Coronavirus may also be making it harder for people to afford their insurance and premium finance payments. The FCA is setting expectations for firms to take steps to help customers alleviate temporary financial distress and maintain insurance cover that meets their demands and needs. 

This might include giving customers premium payment holidays, waiving administration and cancelation fees, relaxing charges or interest incurred for missed payment, extending cooling off periods and partly refunding premium payments where the whole amount has been paid up front.

The FCA is seeking comments on its proposal to help customers in temporary financial distress by 5 May and on those to assess the value of insurance products by 15 May. If confirmed, the measures to help customers in temporary financial distress will apply shortly after 5 May and those for value assessments shortly after 15 May.

Once implemented the FCA will review this guidance in three months in the light of developments regarding coronavirus and may revise the guidance if appropriate.

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Coronavirus and customers in temporary financial difficulty: draft guidance for insurance and premium finance firms

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