The Chartered Insurance Institute (CII) has urged insurance professionals and the government to act to avoid future test cases by the regulator.
The body has urged the profession to focus on three areas to reduce the need for legal proceedings such as the business interruption (BI) insurance test case brought by the Financial Conduct Authority (FCA) in the wake of the pandemic.
They include a consensus among professionals on definitions where the same words and phrases are used in different contracts, to reassure consumers that two policies, which “look the same on paper”, cover the same risks.
The professional body also proposed an improvement to advice processes, as well as non-advised buying processes, to help clients understand insurable and non-insurable risks.
Additionally, the CII suggested the industry should have an established approach to pandemics and other systemic risks that clearly sets out the scope of government intervention. It said the market would be clear on how it will cover risks if the government clarified what it was prepared to cover.
For instance in March the government launched the Coronavirus Business Interruption Loan Scheme (CBILS), followed by the Coronavirus Large Business Interruption Loan Scheme (CLBILS) in April to provide financial support to businesses affected by the coronavirus.
But the regulator needed to seek court declaration with a test case to resolve the uncertainty around BI claims due to the wording in firms' policies and question marks over how to interpret them.
The result of the case will be legally binding on the insurers in the case.
Sian Fisher, CEO of the Chartered Insurance Institute, said: “As the professional body for insurance, our key concern is to build trust in the profession. For this reason, we welcomed the test case when it was launched, as it will create greater certainty around the legal basis of business interruption contracts.
“Although the High Court decision will bring greater certainty to the situation, we must bear in mind that this decision may be subject to appeal. Business interruption insurance is a crucial product for many SMEs. It provides for a wide range of risks that could threaten the survival of a business, including fire and flood.
“Looking to the future, insurers, brokers and government must act now to reduce the need for court cases such as this one in future.”
According to the FCA, many customers had made claims for financial losses as a result of disruption and business closures caused by the coronavirus.
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