The FCA has today (10th June 2020) provided an update on its High Court test case concerning business interruption (BI) insurance, and published documents relating to this.
However, Mactavish, the specialist insurance buyer and claims resolution experts, feels the FCA’s review is incomplete if it is not extended to look at the role played by brokers in developing policy wordings, providing guidance on coverage and advising on BI claims. This is because it believes they are exposed to huge conflicts of interest as they derive as much of 80% of their revenue from insurers while only 20% is composed of fees from their clients.
Bruce Hepburn, CEO, Mactavish said: “The FCA test case is a result of the ambiguity over the wording of some business interruption insurance policies. We need to look at why this problem occurred, and in representing their clients, what role brokers played.”
Mactavish believes that the fundamental issue at the heart of the Covid-19 insurance crisis is the mismatch of expectations between policyholders and insurers. Brokers sit between these parties and play a critical role in helping clients understand the complex technicalities of insurance policies. It is, therefore, essential for the FCA to look at the quality and accuracy of the advice they have provided – both when the policies were bought and when claims were discussed. If clients were told that they had pandemic cover in place, only to later find that insurers took a very different view then they may well seek indemnification from brokers.
The company also points out that the relationship between brokers and insurers has changed over recent decades as both parties have entered into a complex web of financial and contractual relationships. In some cases, brokers will have provided the policy wordings in question, which were then offered to their clients and underwritten by preferred insurers. Again, it is essential that we understand not only what those policies cover, but what policyholders were told they cover when they bought them.
“We have become increasingly critical of the small print in insurance contracts and believe the current problem of Coronavirus claims being rejected brings this issue into stark relief. We also feel that intermediaries have increasingly started to use over-standardised policy terms, which are often pre-defined as part of a broker scheme or facility that sees them work with a small group of preferred insurers on mutually beneficial financial terms.
This has led to an increased use of generic policies that are often not adapted for client needs, and this long-standing problem has been brutally exposed by Coronavirus, with blanket refusals by insurers to pay the business interruption claims that companies across the country were counting on. This issue should be part of the FCA’s review.”