Industry experts debate how insurers might apply the FCA’s business interruption (BI) test case ruling in a post-pandemic era, as July marks one year since the High Court’s virtual hearing
WE ASKED: ”How will insurers take the BI test case ruling forward post-pandemic?”
Branko Bjelobaba, principal, Branko
“While the ramifications of the Supreme Court’s judgments are far-reaching, it appears that claims are being processed at a steady pace - however, the number of claims being settled, either in full or in part, bear no resemblance to the 370,000 potential policyholders that the FCA took insurers to court for.
“Financial Ombudsman Service (FOS) decisions on complaints made determine that damage only policies provide no cover in these particular circumstances. The same goes for those insureds unable to establish the presence of Covid on the premises - which would be hard to do - or those that tried to class Covid as plague.
“What is clear though is that the insurance industry has decided to provide no, or very little, cover for Covid and that extends to all forms of commercial insurance, as well as travel insurance.
”It is one risk that is simply uninsurable and while insurance is an economic necessity, no insurer wishes to accept a guaranteed influx of claims.
”Every day, we see businesses that are truly suffering. Claims in respect of the first lockdown, which ended nearly a year ago, have still not been settled in full, with insurers citing the reason as complexity in the handling of these claims.
“The sector has not been awash with praise, yet with no government cover for losses due to Covid going forward, or no security should one travel, no one has bothered to be that innovative - discussions on a Pandemic Re solution seem to have gone cold.
”Wordings may be getting clearer, thus avoiding the own goal of unintentionally providing cover, and the FCA will be covering the huge amounts spent on lawyers’ costs by asking the relevant insurers to pay, but what about the insured - is anyone really batting for them?”
Mike Cranny, director, Create Solutions
“When insurers recover their confidence, they will try to rebuild the trust they trashed when they issued policies that needed a court full of judges to determine.
“Customers have a right to understand what they are buying. When it is complex, they need a broker to act as a translator.
”When even the broker can’t understand the policy, there is a problem. The broker is at risk of alleged negligence due to written confusion. A contract that no one understands is a danger to all.
“It’s too late now, but this could have been resolved by insurers negotiating with the chancellor for a backstop, to allow claims to be paid.
“In 1906, Lloyd’s underwriter Cuthbert Heath ordered its agent in San Francisco to ’pay all of our policyholders in full, irrespective of the terms of their policies’.
“I really don’t think insurers will take the BI judgments forward - the FCA and Prudential Regulation Authority (PRA) will. They already have rules around policies being ’clear, fair and not misleading’ - PROD 4 requirements cover product design and target market.
“Public trust is at a very low ebb. Wriggling over words has reinforced the poor view the public hold. This will make it harder for brokers to sell and expose them to greater risks. It’s a mess.”
Peter Blanc, group chief executive, Aston Lark
“The BI test case highlighted just how vital it is to provide customers with absolute clarity over the extent of the cover that they’re buying.
”It is well known that customers simply don’t read the lengthy policy documentation they receive, but what became abundantly clear during the test case is that even if they had read the documentation, they would probably have been none the wiser.
“We simply have to learn to write policies clearly and simply - targeting a reading age of 13 or less. Requiring such simplicity will drive much better conversations with clients and brokers -– if an insurer says that X, Y or Z is not covered, the broker and the client have the opportunity to try to find a solution for that gap.
“If the gap is left hidden on page 32 of a legally written PDF, it is likely to remain hidden - lurking in the background waiting for something to go wrong and for the insurance policy to prove to be a disappointment.
”Let’s strive to make insurance completely dependable, transparent, customer-focused and professional, which would at least mean that a great deal of good would have come from this most challenging of periods.”
Gordon Vater, director, loss adjusting and claims consultancy, Gallagher Bassett
”The answer - with caution and considered care. The past 12 months or so have obviously brought insurers mixed messages with regards to positive and negative reactions. What is often not to the fore of people’s thoughts is that where policies clearly responded, insurers have made payments and progressed claims quickly to give customers financial redress.
”Equally, in many cases, losses were clearly not covered and again quick feedback and certainty was given – admittedly with bad news for customers, but I think it was the certainty people craved.
“The regulator’s actions and the courts’ responses possibly surprised some within the industry.
”In some areas, wordings were not as clear as they should have been – so I think a fair bit of work is being done to ensure policies say what they should say.
”I also think we will see more engagement with customers around being clear on what the policy covers and what it does not.
”I don’t see a sea change in how BI losses are managed. Yes, we have had technology solutions introduced – and some have been very good whilst others have not managed the complexities that BI losses present.
”Real expertise will still be required, but I wonder whether that reservoir of talent will be available to draw upon?”