Time flies when your claims function is inundated with business interruption claims – this week marks a year since the FCA’s initial test case hearing

By Editor Katie Scott

This time last year, the insurance industry was on tenterhooks as the FCA initiated its unprecedented test case action at the High Court against eight insurers over the interpretation of business interruption (BI) claims arising from the Covid-19 pandemic and the associated national mitigation measures.

Conducted virtually, the eight-day hearing kicked off on 20 July 2020 – this week, therefore, marks its one-year anniversary. And what a year it has been, both for the insurance industry and the country more broadly.

The business interruption debate has now not only gone through the High Court, but the Supreme Court has weighed in too, both ruling mainly in favour of policyholders.

Katie Scott_bw_path

Katie Scott

Since the final decision in January then, insurers have been wading through a backlog of claims and policy wordings in what I am sure is a very time consuming process.

This week, the FCA reported the aggregate value of final settlements that have been paid across 16,159 agreed BI claims was £467,251,258, according to snapshot data taken on 5 June 2021.

Meanwhile, the aggregate value of interim or initial BI payments that have been made for 4,188 unsettled claims amounted to £289,595,404.

This means that on 5 June, 20,347 BI policyholders out of 37,702 who have had their claims accepted have received at least an interim payment from their insurer.

The regulator’s monthly updates on these stats show all of the figures rising as insurers slowly make their way through the paperwork, but it certainly feels as if there could be another year’s worth of work still to be done here.

Based on these numbers, there are still 17,355 policyholders who have had their claims accepted but are still awaiting some kind of payment – and that’s without considering the potentially murky number of claims that are still unsettled or are in the process of being negotiated or submitted.

RSA this month confirmed that it has paid around £50m so far in claims related to the test case.

On paying these claims, the insurer’s chief executive of UK and international Scott Egan said: “You can see the progress that we’ve made. You can see us month-on-month make significant inroads into that.

“Our intention is really clear – we want to pay the valid claims as quickly as we possibly can and, therefore, we’re working with our customers to achieve that.”

In terms of assessing BI claims made by RSA policyholders, Egan added that the insurer is working closely with its customers because it appreciates that “it’s difficult for them to provide information and we’re trying to be as helpful as we possibly can in that process”.

He continued: “We’re trying to make interim payments, which we definitely are, as we’re going along, recognising that we don’t always need perfect information to make part payments.

“We’re trying to be as flexible as we possibly can.”

Meanwhile, AXA France has also taken action against its BI claims backlog by offering its 15,000 restaurant owner policyholders a €300m settlement.

Restauranteur policyholders will be able to receive a fixed lump sum indemnity settlement that will cover the equivalent of 15% of 2019’s catering turnover activity for the time period when lockdown measures were imposed on 14 March 2020 and 29 October 2020, subject to the limits stated within their insurance contract.

Brokers that work with AXA France will be kept busy here, as Patrick Cohen, AXA France’s chief executive, said that this initiative “will be implemented throughout the country by our 3,000 tied agents and all our distribution partners with the support of our teams”.

Still work to do

One year on from the initial hearing and the FCA has achieved its ambition of gaining clarity, however implementing this is no easy task as insurers are faced with the double whammy of checking policy wordings against complex legal judgments as well as navigating the vast number of claims that have been made, with the majority of business sectors being impacted in some way, shape or form by the pandemic.

The BI policies discussed in the test case were very much the tip of the iceberg when it comes to the volume and breadth of BI claims that insurers and brokers are negotiating at the moment.

I won’t be surprised if BI claims are still being debated come 2022 – not through the lack of goodwill and hard work on insurers’ part, but just because of the mammoth scale of the task.

Brokers continue to have a pivotal role to play here in helping insureds with claims submissions and information gathering, as well as clarifying whether a claim is even viable under the relevant judgments.

Despite the lockdown road map goal posts being moved by prime minister Boris Johnson on Monday, the light at the end of the tunnel is not yet visible for many insurance firms tackling the still strong BI claim headwinds.