Insuring SMEs : Business Interruption
Over the past few week s we have seen significant efforts being made by the
insurance sector to deal with the impact of the coronavirus pandemic
(Covid-19). For example, it has carried out important work to deal with
customers ' queries at a time when the number has increased exponentially. In
such unprecedented circumstances, the FCA's approach is to be pragmatic
wherever we can to assist banks to help their customers and to engage
extensively and constructively with them and their representative bodies.
On 19 March we set out our expectations for insurance firms following the
Covid-19 pandemic (
https://www.fca.org.uk/firms/insurance-and-coronavirus-our-expectations ). We
outlined our expectation that firms should consider very carefully the needs
of their customers and show flexibility in their treatment of them. While this
statement is true for all insurance products sold to SMEs, the purpose of this
letter is to focus specifically on conduct in relation to business
interruption (BI) insurance.
Insurers and brokers have an essential role to play in supporting their
customers who may be unclear whether they have appropriate cover in place.
Clear, accurate and timely communication is crucial, which we expect firms to
deliver. The FCA is also collecting information from firms in order to assess
how they are interpreting policies.
Based on our conversations with the industry to date, our estimate is that
most policies have basic cover, do not cover pandemics and therefore would
have no obligation to pay out in relation to the Covid-19 pandemic. While this
may be disappointing for the policyholder we see no reasonable grounds to
intervene in such circumstances.
In contrast, there are policies where it is clear that the firm has an
obligation to pay out on a policy. For these policies, it is important that
claims are assessed and settled quickly. A key objective of the FCA is to
ensure that financial pressures on policyholders are not exacerbated by slow
payment, rather, such claims should be paid as soon as is possible. This is
consistent with the wider objective of the authorities to support business and
consumers during the current crisis. If there are reasonable grounds to pay
part of a claim but not to make the payment of such claims in full , we would
like you and your Board to adopt an approach of making an interim payment.
Many firms are already doing this. If you disagree with doing so , we would
like you to send to us the grounds for reaching that decision including how
you believe it represents a fair outcome for customers. Your firm's decision
is likely to help inform our assessment of its culture.
Payment of some policies may be disputed. Where a policyholder is a small
business with an annual turnover below £6.5m, and fewer than 50 employees or
an annual balance sheet below £5m, it is likely to fall within the
jurisdiction of the Financial Ombudsman Service. This can offer the prospect
of faster decisions ( on claims of up to £355,000) than a Court Process and,
where appropriate, more timely payments that help firms recover from the
impact of the Covid-19 pandemic. In due course, the ombudsman will share
details of the approach it will be taking to deciding complaints about
business interruption insurance, most likely through a series of “lead cases”.
In the meantime, the ombudsman is working closely with financial businesses
and their representative organisations to ensure it has a good understanding
of the types of complaints it might receive.
Finally, from today the FCA has established a new small business unit, headed
by one of our senior leadership team, Andrew Wigston. It will be overseen
jointly by Jonathan Davidson (Executive Director of Supervision – Retail and
Authorisation) and Sheldon Mills (Interim Executive Director of Strategy and
Competition). This unit will coordinate the activities of the FCA across small
business issues, in terms of ensuring regulated firms are supported through
the challenges posed by the current crisis, gathering intelligence about the
treatment of small businesses by financial services firms during the crisis
and ensuring a co-ordinated response by the FCA to any issues identified. We
will also continue to co-ordinate closely with the Financial Ombudsman
Service.
Christopher Woolard
Interim Chief Executive