Financial Conduct Authority  

FCA probes 500 insurance policies in test case preparation

FCA probes 500 insurance policies in test case preparation

The Financial Conduct Authority has reviewed more than 500 business interruption policies from 40 insurers in order to pull together a sample of 17 policy wordings as part of its plans to bring forward a High Court test case.

In an update this morning (June 1) the regulator confirmed it had selected the 17 policy wordings which will be used in the court case to represent key issues in dispute between policyholders and insurers. 

At the beginning of last month the watchdog announced it intended to place before the courts a sample of cases in which it was uncertain whether a business was covered by its business interruption insurance for losses caused by the virus fallout.

Business interruption insurance covers a firm for loss of income during periods it cannot carry out business as usual due to an unexpected event. 

The FCA has now identified the representative sample of policy wordings to be examined in the test case and insurers that use those wordings.

The regulator said the initial list of insurers and the policy wordings they used was not exhaustive, and it has published a short consultation on draft guidance asking all insurers to check their policy wordings against those it intends to test to see if theirs will be impacted by the outcome of the case. 

The document also sets out the FCA’s expectations of all firms handling business interruption claims and any related complaints between now and the court decision.

The FCA expects to publish a list of all the relevant insurers and policies that may have impacted wordings in early July.

Christopher Woolard, interim chief executive at the FCA, said: “The court action we are taking is aimed at providing clarity and certainty for everyone involved in these business interruption disputes, policyholder and insurer alike. 

“We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market. 

“The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.”

It has now asked the following insurers to participate in the High Court 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

Ultimately, the watchdog says it wants to “achieve clarity for all concerned in an unprecedented situation.” 

Its view remains that most SME insurance policies are focused on property damage (and only have basic cover for business interruption 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 FCA’s case is focused on the remainder of policies that could be argued to include cover.

The FCA stated: “Policyholders should not assume that simple inclusion of their policy wording in this case will mean their policies are responsive. 

“We are seeking a judgement that will help policyholders and insurers have a much clearer view of which business interruption policies respond to the pandemic, and those that don’t.