UK FCA Response to COVID-19 Insurance Issues
First published May 18, 2020
UK insurance customers are facing many of the same challenges as their counterparts in the United States. Over the last two weeks the UK Financial Conduct Authority (FCA) has taken a number of actions aimed at addressing those challenges — although in a manner rather different than has been playing out in the U.S.
Business Interruption Coverage Disputes
The FCA has hired a litigation firm to commence a test action against representative insurance companies within the next two months. The firm will advance policyholder interests in its request for a judicial declaration of coverage under select business interruption wordings. Initially, it appeared the action would center on certain coverage options available in the UK market that do not require evidence of property damage to recover under the policy. While presently unclear, it is possible the scope of this action will expand to include coverages closer to those available in the standard U.S. market.
Product Value Assessment
The FCA has proposed guidelines requiring insurers to review the impact COVID-19 has had on the value of the products they sell. The FCA is concerned certain insurance products offer little or no value during the COVID-19 lockdown. While U.S. insurance companies and insurance commissioners have focused on compensating policyholders for exposure reduction (such as rebates under motor vehicle policies because fewer miles are being driven), the FCA is explicitly not concerned with such cases in this guidance. Instead, the FCA is focused on situations where a claim cannot be made under the product or, if a claim is made, the insurer cannot deliver in the manner promised.
Financially Distressed Customers
The FCA has finalized guidance for insurers to identify and assist individual and small business policyholders in temporary financial distress as a result of the COVID-19 crisis. The FCA expects insurers to monitor their customers for signs of financial distress (e.g., a missed premium payment or request for reduction in coverage) and reach out to offer appropriate options. While regulators in the U.S. have looked to blanket extensions of premium due dates, the FCA contemplates the possibility of a more flexible approach based on an individual customer’s financial situation.
