Today, the FCA published a statement that states that it intends to take court action in relation to key BI clauses and policy wordings to address uncertainties that have arisen over their application to the current Covid-19 pandemic. Additionally, in a press release, it has expressed its proposals on how insurers should be helping customers.
Court action to address BI uncertainties
The FCA announced that it is to take ‘decisive action’ by seeking declaratory judgments from the courts in order to address the key terms that have caused uncertainties. It is hoped that such judgments will clarify the meaning and effect of the most frequent BI contractual clauses and to provide a basis for calculating claims values.
The statement today builds upon the 15 April ‘Dear CEO Letter’ (discussed in a recent Hogan Lovells Engage post) which expressed the FCA’s view that most SME coverage would not require pay-outs and for those that do, prompt payment by insurers is required.
The FCA has decided to pursue court action to clarify uncertainty as to whether particular policy wordings cover losses arising from the current pandemic. The statement confirms that the FCA intends to identify cases that are representative of the most frequent clauses.
It is not certain how the FCA will identify these ‘carefully chosen’ clauses, however it has indicated that is has written to a ‘small number of relevant firms’ to request they clarify, by 15 May, whether they are declining BI claims and if they believe their policy wordings provide cover for BI losses arising from "triggers" other than property damage. The FCA will then consider which firms it will ask to join court actions.
FCA general expectations on insurance firms
The FCA announced that its proposed measures to support customers and businesses will set out the FCA’s expectation that insurers ‘consider whether their products still offer value to customers’ in the current Covid-19 pandemic.
The FCA explains that some policies may not be of benefit or relevance during the current crisis and proposes by way of example that insurance companies may wish to consider refunding some premiums or suspend payments. While some insurers are already giving partial refunds for insurance which goes "unused" during the pandemic, any proposal for insurers to give premium refunds due solely to pandemic losses not being covered is likely to be resisted.
The FCA also proposes to provide temporary financial relief to customers in the current situation which includes examples such as the waiving of administrative fees.
Next steps
The FCA is seeking comments on its temporary relief proposals by 5 May and insurance product value assessment by 15 May.
Should protective measures be confirmed by the FCA, they will apply shortly after the respective dates. The FCA will review implemented guidance in 3 months.
Authored by Charlie Shute.
