Financial watchdog to scrutinise insurance industry over coronavirus claims
The financial watchdog has created a special unit to monitor how the insurance industry deals with coronavirus claims from the small business (SME) sector.
Today (April 15), the Financial Conduct Authority (FCA) wrote to the chief executives of insurance companies setting out its expectations of insurers in relation to claims from SMEs for business interruption cover.
Some SMEs have expressed disappointment with the response from their insurers.
In its letter from interim chief executive Christopher Woolard, the FCA praised the insurance sector in its efforts to deal with the impact of the coronavirus pandemic, particularly its work to deal with customers’ queries at a time when the number has increased exponentially.
It referenced its statement on March 19, regarding its expectations for insurance firms following the pandemic, that firms should consider very carefully the needs of their customers and show flexibility in their treatment of them.
However, its focus in its latest statement is in relation to business interruption (BI) insurance.
It says insurers and brokers have an essential role to play in supporting their customers who may be unclear whether they have appropriate cover in place.
The letter says: “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 conversations with the industry to date, the FCA estimates that most policies do not cover pandemics, and insurers have no obligation to pay out in relation to the pandemic: “While this may be disappointing for the policyholder, we see no reasonable grounds to intervene in such circumstances,” it said.
But it added: “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.”
The letter to CEOs, says: “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.”
The FCA said some SMEs with an annual turnover below £6.5m and fewer than 50 staff, or an annual balance sheet below £5m, are likely to fall within the jurisdiction of the Financial Ombudsman Service.
But it announced that, from today the FCA has established a new small business unit, headed by one of its senior leadership team, Andrew Wigston.
This unit will be overseen jointly by Jonathan Davidson (executive director of supervision – retail and authorisation) and Sheldon Mills (interim executive director of strategy and competition), and 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.
This is in addition to the FCA continuing to co-ordinate closely with the Financial Ombudsman Service, it said.