Covid-19: FCA estimates that most business interruption insurance provides no pandemic cover but urges insurer flexibility on claim payments

On 15 April 2020, the Financial Conduct Authority (FCA) wrote to the CEOs of all insurance firms regarding business interruption (BI) polices sold to SMEs. The letter is supplementary to an FCA publication of 19 March 2020 which outlined its expectations for general insurance firms regarding their treatment of customers in respect of the Covid-19 pandemic.

The letter provides the following FCA insights regarding BI coverage in the context of Covid-19:

• Most policies provide no coverage: The FCA estimates that most BI policies do not cover pandemics and so would not respond to Covid-19 related claims.
• Claim payments: In circumstances where a policy nevertheless does clearly provide cover, the FCA stresses that financial pressures on policyholders should not be exacerbated by insurer delays. Insurers must pay claims “as soon as possible” and where only part of a claim is disputed, interim claim payments should be made. Insurers not following that approach are expressly required to justify this to the FCA.
• The Financial Ombudsman Service can settle disputes: The FCA reminds SMEs that the Financial Ombudsman Service can offer the prospect of faster dispute resolution compared to a Court process.

The FCA also announced the establishment of a small business unit that will be responsible for gathering intelligence about the treatment of SMEs by financial services firms during the crisis and ensuring a co-ordinated response by the FCA to any issues identified.

A copy of the FCA’s Dear CEO letter can be found here.

For an analysis of Covid-19 coverage issues and the insurance implications of the lockdown, please read our article.