01 June 2020

This article was written by Anna Davis. 

After approaching 56 insurers and reviewing over 500 relevant policies, the FCA has identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute. The FCA’s view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. The test case is focused on the remainder of policies that could be argued to include cover.

The FCA has published:

  • an initial list of insurers (the FCA expects to publish a list of all the relevant insurers and policies that may have impacted wordings in early July)
  • a representative sample of 17 policy wordings
  • proposed assumed facts (for example, the types of business and how they responded to the pandemic)
  • a proposed issues matrix
  • proposed questions for determination by the court
  • a short consultation on draft guidance asking all insurers to check their policy wordings against those we intend to test to see if theirs will be impacted by the outcome of the case.

The following insurers, who underwrite policies in the representative sample, are assisting by participating in the test case:

  • Arch Insurance (UK) Limited
  • Argenta Syndicate Management Limited
  • Ecclesiastical Insurance Office plc
  • Hiscox Insurance Company Limited
  • MS Amlin Underwriting Limited
  • QBE UK Ltd
  • Royal & Sun Alliance Insurance plc
  • Zurich Insurance plc

The draft guidance sets out our expectations for insurers and insurance intermediaries when handling claims and complaints for non-damage business interruption policies during the test case. It highlights particular steps that we consider firms should be taking to:

  • identify the potential implications of the test case on their decisions to reject claims
  • keep policyholders informed about the test case and its implications for policies, claims and any settlement offers
  • treat policyholders fairly when the test case is resolved.

In brief, it proposes that insurers should:

  1. review the test case and determine whether or not their decisions on claims may (if already taken) be affected by, or (if not yet taken) will depend on, the final resolution of the test case
  2. identify any other policies where either: the test case may provide guidance on the interpretation / effect of a policy wording but where the insurer believes that their decision on claims under the policy will not be affected by the test case, or: the test case is not relevant to the interpretation or effect of a relevant policy wording
  3. record their reasons for their conclusions under their review at 2 & 3 and update them as the test case develops
  4. appoint a senior manager to oversee the review
  5. provide the FCA with the results of their review using the template provided by the FCA
  6. publish sufficient details with appropriate prominence and signposting to keep all policyholders with relevant policies updated about the test case and its implications for potential claims under their policies
  7. review, and as necessary, update statements or other communications to policyholders or brokers on their policies and claims
  8. update policyholders who have made claims of complaints.

Guidance is also provided on handling claims or complaints that are partially affected by the test case and on offers to settle and final responses during the test case.

Following final resolution of the test case insurers should:

  • handle and assess all outstanding claims and complaints which depend on the outcome of the test case and apply the judgment(s) in the test case so far as relevant
  • reassess all claims they rejected before final resolution of the test case that did not proceed to become complaints in accordance with ICOBS 8.

Responses to the consultation are requested by 5pm on Friday 5 June.

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