In its role as regulator of general insurance business, the FCA has provided guidance to insurers since the COVID-19 crisis began.
On 19 March 2020, the FCA set out its expectations of insurance firms during COVID-19. The FCA said that many customers would be in a vulnerable position because of the COVID-19 pandemic, and it expected insurers to be aware of the circumstances in which their customers find themselves.
The FCA expected firms to continue to seek to meet regulatory requirements, including the obligation to act honestly, fairly, and professionally in accordance with the best interests of the customer. This meant, in the FCA’s view, that firms should very carefully consider the needs of their customers and show flexibility in their treatment of them. Further, the FCA warned insurers that it “would not expect to see their ability to claim impacted by circumstances over which they have little control”. For example, if insureds were late in notifying, or were unable to strictly comply with a requirement due to COVID-19, they should not be penalised as a result.
In a letter sent to CEOs “Insuring SMEs” on 15 April 2020, the FCA set out how it expected insurers and brokers to conduct themselves in relation to BI insurance for small and medium-size enterprises (SMEs). See our previous alert regarding BI insurance and the issues that an insured might face in light of COVID-19. The letter stated that “Insurers and brokers have an essential role to play in supporting their customers who may be unclear whether they have appropriate cover in place”. The FCA reiterated that “clear, accurate and timely communication” was crucial.
The FCA noted and recognised that most standard BI policies are unlikely to provide protection for pandemics. The FCA said that it saw no reasonable grounds to intervene in circumstances where the coverage position appeared clear.
The FCA indicated that it was different, however, where it was “clear that the firm has an obligation to pay out on a policy”. In those circumstances, the FCA expected insurers to assess and settle claims quickly.
With that letter perhaps not being read and acted upon as the FCA would have liked, the FCA made another statement regarding BI policies late last week.
In a bid to tackle cases where payment was required as the policy wording appeared clear, or the insured had a reasonable apprehension that they had purchased cover for this type of circumstance, the FCA has decided to take proactive legal action. As described below, the FCA intends seeking a court declaration, on an agreed and urgent basis, to resolve uncertainty for many customers making BI claims and the basis upon which firms are making decisions to accept claims.
The FCA is seeking to bring what it believes are the “key relevant cases” to court as soon as possible, with the aim to bring clarity on specific policy clauses and to obtain a definitive view on the disputed policies. The regulator has said that the cases taken to court will be “carefully chosen” as a representative sample of the most commonly used policy wordings where cover has been disputed by insurers. To that end, the FCA said it would endeavour putting those selected cases before the court on an agreed basis with the insurers concerned, in order to obtain the fastest possible judgment.
The FCA is therefore writing to a small number of insurance firms that it regulates, seeking clarification as to whether they are declining, or intend to decline, BI claims. The FCA expects these firms to reply to it, clarifying their position, by no later than 15 May 2020. Based on the information obtained, the FCA will then determine which firms to ask to join the court process.
The FCA confirmed its intention to take this action in the public interest, in advancement of its statutory consumer protection and market integrity objectives.
At the same time as publishing a statement specific to BI claims, the FCA also proposed a series of measures to support both consumers and businesses holding insurance products and facing other issues as a result of COVID-19. The package of measures sets out the FCA’s expectations that insurance firms should consider whether their products still offer value to customers in the current situation and whether insurers can and should be doing more for those suffering a financial impact linked to COVID-19, including giving customers premium payment holidays or waiving administration or cancellation fees.
Christopher Woolard, Interim Chief Executive of the FCA, said: “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”.
The additional guidance proposals are designed to provide consumers with temporary support in light of the exceptional circumstances arising from COVID-19 and are consistent with steps the FCA has taken in other markets it regulates, including credit cards, overdrafts and personal loans.
The way in which insurers and brokers act towards their customers now will likely contribute to the FCA’s assessment of the culture at those firms. For brokers and insurers, this means acting quickly and clearly in order to minimise customer harm.
We will continue to update you on this situation, and, in the interim, if you need help understanding more about the FCA’s statements, or assessing your insurance cover, please reach out to one of the lawyers listed below.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com
Client Alert 2020-288
