In a follow-up to the High Court’s ruling on coronavirus-related business interruption claims by businesses, the UK’s Financial Conduct Authority (FCA) is advising insurers that they must pay all valid claims “in full at the earliest possible date to support business and consumers during the current situation.”
Insurers failing to do so will feel the full weight of the FCA’s regulatory power, the agency warns in a Sept. 18 “Dear CEO” letter signed by Christopher Woolard, interim chief executive of the FCA.
Insurers were instructed to provide the FCA with “at least an initial update on the implications of the judgment” by Sept. 22.
The High Court has scheduled a hearing on applications for potential appeals for Oct. 2.
The case was brought against eight insurers including Hiscox, RSA, QBE and Zurich over whether various business interruption (BI) policy wordings should cover for closures and disruption put in place due to the pandemic. The case is estimated to affect as many as 370,000 policyholders.
The FCA says the case accomplished what it wanted, bringing clarity to the COVID-19 coverage issues for many small-to-medium (SME) businesses by finding in favor of its policyholder arguments on the majority of key issues, while insurers point out they won some parts, too. (See related article titled: Financial Conduct Authority Hails Business Interruption Ruling as Policyholder Win.)
The FCA acknowledges that the judgment did not say that insurers are liable across all of the 21 different types of policy wording considered by the court in the test sample. “Each policy needs to be considered against the detailed judgment to work out what it means for that policy,” said the FCA.
Insurers weighed in after the ruling even as they were just beginning to assess the full impact and decide how to proceed. (See Insurers, Policyholders, Analysts React to UK’s COVID-19 Business Interruption Ruling.)
Zurich Insurance said the decision affirms its policy interpretations.
QBE said that catastrophe reinsurance will limit the net cost of business interruption claims in its UK insurance business to $70 million. It is weighing whether to appeal.
Hiscox said the judgment clarifies that fewer than one third of its 34,000 UK business interruption policies may respond and it estimates additional COVID-19 claims arising from business interruption to be less than £100 million net of reinsurance.
Insurer RSA said the ruling upheld some but not all of its interpretations of provisions and it estimates the impact of this judgment to be around £85m, which it expects will be reduce further through reinsurance.
Lloyd’s of London said it will “carefully consider” the implications for its customers as well as its impact on the Lloyd’s market.
The Sept. 15 London court ruling came in a test case brought by FCA to clarify insurance coverage for COVID-19 related business interruption claims.
In its latest letter, the FCA urged insurers to not only reassess and settle claims quickly, but also make interim payments wherever possible. The regulator said it wants to ensure that slow payment does not “exacerbate financial pressures” on policyholders.
“In some cases, insurers will feel that the judgment gives them the clarity they need to now conclude their claims processes with their customers. We encourage these insurers to do so as quickly as possible. In other cases, insurers may determine they need to wait to understand whether a specific point in the judgment will be appealed. As you write to your policyholders over the coming week, we expect you to be clear to your policyholders on your next steps,” FCA told insurers in the letter.
“We believe that insurers should reflect on the clarity the judgment provides and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. This should include taking all reasonable steps to ensure that all those claims are ready to be paid and settled at the earliest possible opportunity after any relevant appeals,” the letter said.
The FCA reminded insurers that they typically they should not deduct any government assistance insureds may have received from claims payments.
Top Photo: FAC building.
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