Today, the FCA is announcing that it intends to obtain a court declaration to resolve contractual uncertainty in business interruption (BI) insurance cover. This is due to continuing and widespread concerns about the lack of clarity and certainty for some customers making business interruption claims, and the basis on which some firms are making decisions in relation to claims.
We are intending to take this action in the public interest to advance our consumer protection and market integrity objectives. We believe the circumstances of the current coronavirus (Covid-19) emergency, and its effect on businesses holding BI policies means that any uncertainty needs to be resolved as quickly as possible.
It should be noted that this intended action by the FCA, which we hope to place before the courts in an agreed and urgent manner, is not intended to encompass all possible disputes, but resolve some key contractual uncertainties. This will assist both insurers and the insured. It will not determine how much is payable under individual policies, but will provide the basis for doing so.
The action will not prevent individuals from pursuing issues through the courts, or taking eligible complaints to the Financial Ombudsman. If we obtain a declaratory judgment, the Ombudsman will be able to take it into account in considering relevant complaints.
Background
As stated in our Dear CEO letter[1] of 15 April, our view is 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 unlikely to be obliged to pay out in relation to the coronavirus pandemic.
Some customers’ policies also cover for BI from other causes (for example in relation to infectious/notifiable diseases, non-damage denial of access and public authority closures/restrictions) and may in some cases provide cover. Whether there is cover for the business interruption related to the pandemic crisis will depend on a number of factors including the policy’s wording. The range of wordings and types of coverage are sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim.
There are BI policies where firms have determined an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. As the FCA set out on 15 April, firms still need to do more work to agree, process and pay these claims as promptly as possible in all cases, including using interim payments where appropriate. We note firms’ obligations to do so in line with Principle 6 and ICOBS and we expect firms to demonstrate to us that they are complying with these obligations in relation to customers with these policies.
However, in relation to other policies, 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.
What we’ll do to help with this uncertainty
The issues around BI policies are complex and there are significant differences in policy wording between policies and across firms. These complexities have the potential to create ongoing uncertainty for a lengthy period.
It is clear that decisive action is appropriate given the severity of the potential consequences for customers in the current coronavirus emergency.
In this context, we will work actively and promptly to seek to resolve issues causing uncertainty over BI coverage, to provide greater clarity for parties and help ensure there is not undue delay to payments where there are valid claims.
We intend to do this by seeking to bring relevant cases to court as soon as possible for an authoritative declaratory judgment regarding the meaning and effect of some BI insurance policy wordings where there remains unresolved uncertainty. We are working to identify a sample of cases representative of all the most frequently used policy wordings that are giving rise to uncertainty, where it would be appropriate for us to bring such proceedings.
We have outlined to a small number of relevant firms, and the Association of British Insurers, our proposals for seeking a timely, transparent and authoritative judgment. This group comprises some firms that have already made decisions about the application of their policies and others that are considering similar questions around policy coverage that could also give rise to genuine uncertainty. Today, we are writing to all these firms and expect them to clarify their position, by no later than 15 May 2020, as to whether they believe that their policy wordings for BI losses arising other than from property damage provide cover.
Further examples may emerge. If we become aware of further such relevant firms we will ask for them to clarify their position and may ask them to join any action.
Our general expectations of firms
Where policies do not respond to the current situation, we nevertheless expect all general insurance (GI) firms to meet their obligations under Principle 6, ICOBS and DISP when handling claims and any complaints arising from them, and to communicate clearly and sympathetically to their customers at all times. GI firms may also consider whether there is other help they could give their customers at this point (for example, signposting to other potential sources of support).
In some cases where there is no cover provided under the policy, there is a gap between firms’ and customers’ understanding of what they thought was covered by the policy. If the BI cover provided is not consistent with what the customer requested or instructed, or with what the customer was informed was being provided, then customers may raise these concerns as a complaint with their insurer or intermediary. Some customers may believe they have been mis-sold their BI policy by their insurer or intermediary. Where this is the case, customers can make a complaint if they are not satisfied with the product they have purchased or the outcome of their claim, and if they remain unsatisfied they can complain to the Financial Ombudsman Service.
Our expectations under Principle 6 and ICOBS also apply to firms’ work to establish the amount due to be paid to customers where there are valid claims to be made under the policy. In some cases, it will be possible to make interim or partial payments while discussions around the final value of the claims remain ongoing.
For all of the above, we expect firms to communicate their approach and decisions clearly to their customers and to promptly and appropriately investigate any complaints that they receive. We will consider firms’ behaviour and performance compared to these expectations during our business-as-usual supervision and when assessing their culture.
We will continue to cooperate closely with the Financial Ombudsman Service throughout this process. This will assist our regular supervision and monitoring of firms by giving us additional information about any trends which may indicate that firms are failing to meet the expectations set out here, and where further regulatory intervention may be required.