UK regulator to seek a court declaration to resolve uncertainty for many customers making BI claims
The Financial Conduct Authority (FCA) has announced it intends to seek legal clarity on business interruption (BI) insurance to resolve doubt for businesses who are facing uncertainty on their claims.
It 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.
Christopher Woolard, interim CEO of the FCA, 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.”
The regulator intends to seek a court declaration to resolve uncertainty for many customers making BI claims, and the basis on which firms are making decisions to accept claims.
It is seeking 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 disputed BI insurance policies if there remains unresolved uncertainty.
The FCA revealed that it is writing to a small number of insurance firms seeking clarification about whether they are declining, or intend to decline BI claims. It may ask some of these firms to join the court process.
‘Our 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,” said Woolard. “It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”
The regulator also said it believed insurers should be considering whether their products still offered value to customers. This might include changing how benefits are delivered, refunding some premiums or suspending monthly payments for a certain period of time.
The FCA proposes giving insurers up to six months to assess this so that it can take into account effects of coronavirus in a more rounded manner.
Industry groups have welcomed the move. UK broking body BIBA said its members had “serious concerns for their clients and their ability to recover from this situation”.
“This intervention from the regulator to create certainty for many customers making BI claims, and the basis on which firms are making decisions on claims is a step in the right direction,” it added.
Meanwhile, insurance consultancy Mactavish revealed that its claims dispute resolution team has seen a ”huge increase” in companies contacting it to review the validity of rejected BI coronavirus related claims.
It believes that poor wording in some policies means that a small percentage of claims should be settled. It also argues that the industry has exaggerated the potential size of coronavirus-related insurance claims because extensions to policies that cover diseases are often capped at less than 10% of total cover.
Bruce Hepburn, CEO of Mactavish, said: “Some insurers have been too aggressive in refusing some business interruption coronavirus-related claims and scored a PR own-goal because there are definitely a small number that should be settled. Even though insurers may feel their policies don’t cover this issue, in some cases their poor document wording means they may be liable to pay-out, and greater legal clarity around this would be welcome.”
A group of SME clients of insurer Hiscox have threatened a class-action lawsuit against the firm after they were denied a payout for “an occurrence of any human infectious or human contagious disease” under their BI policies.
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