Discussions around greater transparency in policy wordings and clarifying coverage have become a top priority following the FCA’s business interruption test case – is this a ‘better late than never’ scenario or has the hit to the sector’s reputation crippled any chance of forging customer trust?

By Associate Editor Katie Scott

I think we can all agree that the test case action around the interpretation of business interruption (BI) policy wordings in relation to Covid-19-driven claims has acted like a sledgehammer to the insurance industry’s already mistrusted reputation, especially since both the High Court and Supreme Court have mainly sided with policyholders and the FCA rather than insurers.

Katie Scott_bw_path

Katie Scott

Insurance firms that declined claims, rightfully or not, merely perpetuated the image that the general public already holds.

This topic raises a red flag around the so-called ‘expectation gap’, where insurers and their policyholders have different notions about what coverage is included within the purchased insurance policy.

In turn, this had led to a call for action centred on generating greater transparency within the sector, primarily around creating clear policy wordings and making sure that customers actually understand them.

The Chartered Insurance Institute (CII) has tried to step up to the plate here.

On 14 September last year – the day before the High Court issued its ruling in the BI test case – it created a Chartered Transparency Forum, designed to “examine ways the profession can best meet the expectations of consumers”.

Following this, in December 2020, the Chartered Transparency Forum compiled and published a ‘Transparency Companion’ guide for CII members.

This highlights “how insurance professionals should apply the Chartered Insurance Institute’s Code of Ethics to ensure customers understand the extent of cover and service offered by insurance products and receive clear information before, during and after the point of sale”.

Terrible state of play

The CII further flagged its transparency mission during a webinar on 20 January titled ‘Transparency and Insurance: What can be done to close the expectation gap?’.

Panellists included Chartered Transparency Forum members Peter Blanc, group chief executive of Aston Lark, Graham Trudgill, executive director of Biba, and James Daley, managing director of Fairer Finance.

Outlining the problem the sector finds itself in, Blanc explained: “Transparency is a really interesting topic because at the moment, insurance has got a truly shocking reputation – that’s no over-statement.

“If you stopped 100 people in the street and asked them what they thought about insurance, a fair few of them would say ‘well, you have to buy it and then they try and wriggle every time there’s a claim’. There’s that awful perception that insurance just doesn’t do what it’s supposed to do, which in a lot of cases is very, very unfair.

“Insurance companies do pay claims, we know they pay claims and there are many, many, many happy customers. But unfortunately, those customers just don’t become newsworthy.

”The few unhappy customers, few unhappy outcomes are blown out of all proportion so that the general population’s consensus is that insurance is full of weasel words, excuses and reasons why they can’t honour their promises. It’s a terrible state of play and it’s something that we absolutely have to address.”

Although the webinar was full of good insights about how the sector could reduce the expectation gap, for example lowering the reading age of policy documentation, my fear is that consumers could view this as ‘too little, too late’, as the damage from unpaid BI claims has already impacted many businesses (although I expect more payouts are on the way following the Supreme Court’s decision).

I agree with the panellists that minimising the expectation gap will increase trust in the industry and improve understanding of insurance products more generally – I just wonder whether customers will give the sector a fair chance to demonstrate changes and improvements or whether we will be blighted with the BI reputational curse for years to come, especially as innovation in insurance is not known for its speed.