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COVID-19: Supreme Court judgment in FCA's BI insurance test case
On 15 January 2021, the Supreme Court handed down judgment in FCA v Arch Insurance (UK) Ltd and others [2021] UKSC 1 on the issues on appeal from the High Court in the test case brought by the FCA seeking legal clarity on the meaning and effect of certain non-damage business interruption (BI) insurance policy wordings. The FCA has published a press release and updated its dedicated webpage on the test case to summarise the key aspects of the judgment and outline the next steps.
In our separate briefing, The UK Supreme Court decides on COVID-19 business interruption coverage, we take a look at some key practical and legal considerations for the insurance market, including issues to watch going forwards.
How competitive are UK insurance markets? Bank Underground article
The Bank of England's Bank Underground has published an article on "How competitive are UK insurance markets?" in which the authors take an exploratory approach to address the question, applying benchmarks used in competition research to a unique set of reporting data across multiple UK insurance regulatory regimes, with the hope of stimulating further work. The authors find that competition generally works well in UK life and non-life insurance markets, despite increases in life market concentration over the past 25 years. However, competition regulators have found practices in specific markets that harm consumers.
TCFD recommendations: UNEP FI pilot report and guidance for insurers
A group of 22 insurers and reinsurers convened by the United Nations Environment Programme Finance Initiative (UNEP FI) under its Principles for Sustainable Insurance Initiative (PSI) has issued guidance for insurers to identify, assess and disclose the impact of climate change on their businesses.
The group of insurers piloted methodologies that insurers can use to implement the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosure (TCFD). Disclosing climate risks and opportunities in insurance underwriting portfolios in line with the guidance will help insurers to understand how their business will be challenged by the climate change crisis and how to respond.
Potential climate change-related risks and opportunities that insurers could face are classified into three categories:
- physical risks related to changes in weather patterns, temperature and hydrological conditions;
- transition risks as the world moves towards a net-zero emissions economy and related fundamental changes in, for example, energy, food and transport systems; and
- potential litigation risks pertaining to climate change and breach of underlying legal frameworks on both the business and corporate levels.
The report serves as the final report of the PSI-TCFD pilot project. It discusses the overall climate change risk assessment approach, outlines key findings across various lines of insurance business, provides insights on an integrated insurance risk framework for climate-related disclosures, and suggests additional actions to further enhance climate risk management and disclosures in the insurance industry.
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Authored by Yvonne Clapham
