Broker labels FCA test case as potentially ‘dangerous’ and ‘bizarre’

The FCA test case, set to clarify policy wordings and coverage questions arising from coronavirus-related business interruption (BI) claims, is “dangerous” and “bizarre” according to a Borehamwood-based broker.

Mark Copsey, associate director of the cosmetic division at broker Hamilton Fraser, explained that although the role of the FCA is important, the test case could “have a seriously negative impact on the market”.

He said: “I know the FCA are there ultimately to provide us with the right processes, conduct, rules that are beneficial and that we end up treating customers fairly. I totally understand that, but is it not damaging and bizarre that the body is therefore running a test case against the insurers; that if they came out successfully, it could have a seriously negative impact on the market? It just seems strange to me.”

Dangerous

For Branko Bjelobaba, principal at general insurance FCA compliance consultancy Branko, the danger of the FCA’s test case is “for insurers and their solvency”.

“Brokers sold policies and they may have even given advice on pandemic cover,” he said. “What is being tested is whether the wordings should respond and if the insurers have been jaded in their interpretation of the cover they wrote. Some have written – knowingly or unknowingly – wide covers and are seeking to back pedal on this now.”

Bjelobaba added that “if the court finds in favour of insurers, then I can see clients suing their brokers for having been mis-sold defective covers - although I doubt that the client would have ever requested pandemic cover or their broker assessed it as being required as a risk just being too large to insure.”

“If claims exceed reserves and reinsurance provision, then a bail out from government will be needed and you will have seen a lot of thought being given to Pandemic Re.

“Underwriting is a precise art rather than a story told with the odd fact missing here and there.”

Reputation

Charles Manchester, chief executive at Manchester Underwriting Management, on the other hand, firmly believes that SME insurance providers need to stick by their policy wordings and pay out claims in order to salvage the sector’s reputation.

“There is clearly an issue here,” he said. “There is no question that the crisis is unprecedented in the truest meaning of the word.

“Whilst SME package insurers might not have anticipated the crisis, they need to stand by the terms of their wordings. It’s become a reputational thing for us all in insurance. And, frankly, any proceeds from BI cover will be a windfall to the SMEs, not that it will feel that way.

“The sooner disputed claims are sorted out the better – for the customers, for the insurers and for all of us. What the FCA has done is intervene to accelerate a process that might otherwise have taken months or years. I would applaud them for that.”