Since the beginning of the coronavirus pandemic; businesses all over the world have been greatly impacted financially due to the lockdown, especially in the UK. This has led to many businesses making Business Interruption (BI) insurance claims to help financially recover from the pandemic. Because of this, it has come to light to the FCA that some Business Interruption insurance policies are not clear in what they cover; which have caused uncertainty between insurance firms and customers.

The Financial Conduct Authority (FCA) have found that with different variations of the type of insurance cover available; the wordings aren’t as straight forward as they should be in order to make it clear to customers on whether they can make a claim or not and how much they can receive.

In March 2020, the Financial Conduct Authority have opened an investigation into Business Interruption claims to get legal clarity on this type of insurance; in order to ensure that it is clear what customers can receive during this time and what insurance firms can offer.

The FCA have first started with outlining their expectations for insurance firms to consider and assess. They then issued a statement with their intention to get court declarations; with the goal to resolve contractual uncertainty on the validity of many Business Interruption claims. In May 2020, the FCA invited policyholders who were in BI disputes to send their arguments which identified the basis to create a representative sample of policy wording to be examined in their test case.

They then held a test case including different insurance companies; where they investigated key contractual uncertainties to clarify the wording between policyholders and insurers. Many insurers were in court to discuss this; the FCA have now published an updated list of policies with claims that may be affected.

Which insurers took part in the FCA Business Interruption insurance test case?

The test case was during July 2020, where the trial was taken place in the High Court over an eight-day period. The defendants were Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc and Zurich Insurance Plc.

The submissions for the case were given by the Financial Conduct Authority; Hospitality Insurance Group Action and Hiscox Action Group were the intervenors of this case.

What have insurers said about this?

A few insurers have come out and spoken about what the FCA are doing to find clarity in the wordings of business interruption claims to avoid unnecessary disputes during this time. On the 1st May, after the FCA have issued their statement on what they plan to do; Scott Egan, Chief Executive of RSA UK and International has said: “COVID-19 has had a huge impact on individuals and businesses; many of whom are rightly turning to their insurers for help. RSA is committed to providing the best support and service for our customers at every stage; responding to enquiries and settling claims as quickly as possible. Unfortunately, some people are not covered, and we make any decision to decline a claim very carefully; doing so supported by a thorough investigation of the circumstances and legal advice.

“We are fully supportive of the FCA’s planned court proceedings; as we believe this route will bring about the quickest resolution of disputed cases for customers, and we have been working closely with them. While today’s announcement names 16 insurers, the judgements of the test case will provide guidance to inform the assessment of policies and claims for all providers of business interruption cover.

“Our shared ambition is that this process will deliver fair and consistent outcomes for customers no matter who they are insured by; and we look forward to the resolution the test case will bring.”

Who are the FCA?

The Financial Conduct Authority (FCA) is a financial regulatory body in the UK; which regulates financial firms providing services to consumers. The FCA operates independently from the government and is funded through fees from members of the financial services industry.

What is Business Interruption Insurance?

Business Interruption Insurance is coverage provided by insurers to policyholders who have had a loss due to a disaster. This type of commercial insurance cover enables commercial enterprises to protect their income when they are unable to trade; This could be in the event of an earthquake, fire and natural disaster such as the coronavirus pandemic.

How has the coronavirus pandemic changed this?

With some insurance policies they are constantly changing depending on what is happening around the world and emerging risks. Because of this, in the case of the current coronavirus pandemic, some policies may not be clear on whether the insurer will provide cover to the policyholder; which has come to light due to the pandemic.

How are businesses protected during large scale incidents such as the pandemic?

Business Interruption insurance is under the umbrella of commercial insurance which includes, public, employers’ and product liability insurance; professional indemnity insurance and business interruption insurance. All these different types of insurance help business owner’s run their company after unexpected events that can occur. These types of policies allow businesses to protect their property, equipment, stock, employees; as well as the public who might suffer due to the change in circumstances.

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