Regulator Heads to the Courts Over Insurers’ BI Approach

The UK’s financial services regulator is heading to the courts in an effort to obtain clarity amid the growing row over the payment of business interruption claims.

The Financial Conduct Authority (FCA) has said it intends to seek legal clarity on business interruption (BI) insurance to “resolve doubt for businesses who are facing uncertainty on their claims”.

The FCA’s Interim CEO Christopher Woolard (pic) said the steps were necessary given the number of cases where policyholders believed their BI policy covered the impact of a pandemic, but their insurers countered that the risks were excluded.

As hundreds of firms across the UK are set to go to the courts over BI disputes Mr Woolard said the regulator was simply seeking greater clarity for both sides of the argument.

‘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,” he explained. “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.’

Under the move the FCA 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 these disputed BI insurance policies if there remains unresolved uncertainty.

“The cases placed before the court will be carefully chosen as a representative sample of the most frequently used policy wordings that are giving rise to uncertainty,” it said.

The FCA is also writing to a small number of firms seeking clarification about whether they are declining or intend to decline BI claims.

“The FCA expects these firms to reply to it to clarify their position, by no later than 15 May 2020. Based on the information obtained, the FCA will consider which firms to ask to join the court process.”

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