The Financial Conduct Authority (FCA) intends to seek legal clarity on business interruption (BI) insurance, to resolve doubt for businesses facing uncertainty on their claims.
The FCA intends to seek a court declaration, on an agreed an urgent basis, to remove uncertainty for 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 greatest clarity on specific policy clauses as soon as possible to get an independent view on these disputed BI insurance policies.
The cases will be chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty.
The FCA is writing to a small number of firms seeking clarification about whether they intend to decline BI claims; it expects these firms to reply by no later than 15 May.
It is has also proposed a series of measures to support consumers and businesses holding insurance products and facing other issues as a result of COVID-19.
The package of measures sets out the FCA’s expectations that insurance firms should consider whether their products still offer value to customers in the current situation, and whether they can do more for those suffering a financial impact from coronavirus.
Insurers will have a range of options they can consider, which might include giving customers premium payment holidays, waiving admin and cancellation fees, relaxing charges or interest incurred for missed payments, extending cooling off periods and partly refunding premium payments.
Christopher Woolard, interim chief executive 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.
“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.
“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.”