The FCA has published an open letter today to all UK insurers, which notes that most Business Interruption policies do NOT have pandemic cover included. But the regulator states that where there is pandemic or contagious disease cover, insurers should pay up – and quickly.
`If there are reasonable grounds to pay part of a claim, then an interim payment should be made,’ says the FCA, adding that, `If you disagree with doing so then we would like you to send us the grounds for reaching that decision.’
The advice from the FCA may well prove crucial in settling disputed claims by businesses, such as the London PR company who stated to the press recently that they would consider legal action against Hiscox for failure to pay out. In the USA restaurants and law firms have already filed claims against their insurers for not paying out on business closure policies. An interesting battle or two lies ahead.
An ABI spokesperson commented:
“This FCA clarification confirms the scope of pandemic insurance among firms. Insurers recognise this is a worrying time for all businesses and ABI members are committed to swift payment of valid claims and interim payments to their customers.”
Meanwhile the FCA notes in its lettertoday that companies with a turnover of less than £5m may take their disputed claim to the Financial Ombudsman instead of court, and that leading cases will be looked at first, presumably to establish guidelines on the exact policy wording which defines liability in Corona cases.
The FCA has also established a small business unit today, to look after the interests of smaller companies, many of whom feel left out of Rishi Sunak’s grants and loans schemes, and cannot find practical help from their banks in many cases, unless they put assets on the line for credit.
Comment by Mactavish;
We are concerned that insurers will not meet today’s request from the FCA urging them to pay out quickly on Coronavirus related business insurance claims where clients are covered, and when there are ‘reasonable grounds’ to pay part of a claim, to make interim payments.
This is because insurers have recently incurred significant losses on their investments and they will want to manage their cash flow more carefully than during normal circumstances. Evidence of this is that many have cancelled their payment of dividends to investors following guidance from the Bank of England, and some insurers may look to raise further capital from the stock markets.
In addition to this, settlements could be slowed down because the claims departments of insurers are not at full capacity due to the lockdown, and potentially a higher number of staff being off work because they have Covid-19.
Mactavish would like to see an independent review process set up to monitor how insurers are dealing with Coronavirus related insurance claims.
Bruce Hepburn, CEO, Mactavish said: “The impact of Coronavirus on businesses is huge, and sadly most did not have insurance policies that covered pandemics so relatively few will be successful if they make a claim.
“However, with many businesses struggling insurers have a duty to make any legitimate settlements as quickly as possible, but to also respond to clients who have made claims to let them know the outcome and the reasons for this.
“Insurers should have their feet held to the fire over this and the only way of doing this would be to have a review process set up so that their actions can be monitored properly.”
The UK insurance industry can breathe a sigh of relief in that the FCA sees no grounds for siding with policyholders who bought cover that specifically excluded pandemics. But the wider issue of trust is something that the industry will have to cope with over the next year or two, as a raft of travel, business and car repair claims, all arrive via disgruntled consumers.
People are going to become angry that Income Protection plans do not mean that all health risks are covered, or that `Gold’ travel cover does not mean all your expenses for eventually getting home after a cancelled holiday are being met. Car owners are going to be upset that their vehicle is being written off, not repaired after a minor shunt, as the accident management sector inevitably shrinks over this summer.
Rebuilding trust between insurer and customer is going to be a rocky road.