Financial watchdog asks court to clarify Covid-19 business insurance

Financial watchdog urgently asks courts to settle disputes between businesses and insurance firms who are refusing to pay out over coronavirus disruption

  • Financial Conduct Authority is seeking clarity on coronavirus insurance claims
  • Companies were forced to suspend operations and furlough staff after lockdown
  • ‘Widespread concerns’ about whether or not policies cover Covid-19 disruptions
  • Here’s how to help people impacted by Covid-19

Britain’s financial watchdog will ask the courts to rule on a series of disagreements between businesses and insurers who are refusing to pay out over coronavirus hits. 

The Financial Conduct Authority (FCA) said it hopes a court ruling on some relevant cases can provide more clarity, both to the insurance sector and to customers, over whether businesses can claim compensation for disruption caused by the coronavirus pandemic.

A national lockdown to fight the pandemic has forced many companies to temporarily suspend operations and furlough staff.

The Financial Conduct Authority (FCA) hopes a court ruling on some cases can provide more clarity over whether businesses can claim compensation for disruption caused by the coronavirus pandemic

Though a majority of business interruption insurance policies are unlikely to pay out during a pandemic, there are ‘widespread concerns’ about the lack of clarity on some policies, the FCA said. 

‘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,’ said interim FCA chief executive Christopher Woolard. 

‘However, there remain a number of policies where it is clear that the firm has an obligation to pay out.’

Mr Woolard said the court action is intended to resolve key issues as fast as possible in cases ‘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’. 

The watchdog said court action would not determine how much is payable under individual policies but will provide the basis for doing so.

Lloyd’s of London insurer Hiscox is among firms that have come under pressure from small businesses to pay out for business interruption, along with FTSE 100 insurer RSA, French insurer AXA and Australian firm QBE.

FCA interim chief executive Christopher Woolard acknowledged that in the majority of cases business interruption insurance was not purchased to cover the current emergency

The insurers did not immediately respond to comment but have previously said they seek to pay valid claims quickly.

The FCA said it had written to ‘a small number of firms’ to ask if they were declining business interruption claims. It said it would seek a response by May 15 and would then ‘consider which firms to ask to join the court process’.

The Association of British Insurers welcomed the FCA’s plans, adding that the sector would work closely with the regulator and would ‘support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered’.

It said the vast majority of business interruption policies did not cover pandemics and the UK government had confirmed it would not seek to retrospectively change contracts.

The financial watchdog said court action would not determine how much is payable under individual policies but will provide the basis for doing so

In the United States, eight states have introduced legislation which would require insurers to pay claims, mainly to small businesses, despite exclusions.

The FCA also set out measures to support consumers and businesses who hold insurance products and who are facing other issues as a result of coronavirus.

The package sets out the watchdog’s expectations that insurers should consider whether their products still offer value to customers in the pandemic and whether they can be doing more for those suffering a financial impact because of coronavirus, the FCA said.

The watchdog said that insurers should grant premium payment holidays to customers, if requested, for a rolling period of up to three months. The measures come into effect on May 13.

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