General Insurance Article - PwC comment on Business Interruption test case from the FCA

PwC comments on the verdict regarding the Financial Conduct Authority’s (FCA)’s business interruption insurance test case.

 Mohammad Khan, UK General Insurance Leader at PwC UK, said: Today’s ruling will have a significant impact on approximately 370,000 policyholders covered directly or indirectly by the policy wordings. The Court has found in favour of policyholders in the majority of the issues under scrutiny, it remains to be seen whether there will be appeals. However, if the insurers appeal, this may mean there will be a further delay for impacted policyholders and we would not expect a decision before January 2021.

 Insurers with affected portfolios should have a clear view of what policies are affected by each clause by now. For those not defending the test case, they should also have a mapping of their own clauses to the ‘equivalent’ clauses subject to the Test case.

 The judgement presents some nuances of interpretation which means further analysis to identify those policies where the Court found in favour of insurers and where claims will not be paid up. These relate to a potential narrow definition of prevention of access and inability to use premises. This means that the same type of business might find itself covered or not depending on whether it was still selling or whether it was mandated to close by the government rulings rather than its advice.

 Such mapping is essential to enable insurers to communicate with policyholders within seven days about the status of their claims and complaints as required by the regulator. There are 370,000 affected policyholders, so acting fast is an operational challenge and insurers need to consider their ability to handle large volumes of claims and complaints promptly and accurately.

 The judgement might also lead to more claims being made in the coming weeks and, in the longer term, these rulings will have an impact on how insurance policies are worded and potentially sold.

 There will be a renewed focus on policy wording standardisation which may impact the freedom of brokers to set slightly different wordings for their clients. Insurers and brokers will need to consider the use of technology to ensure that different wordings are provided to customers to meet their insurance needs whilst also ensuring they meet the requirements arising from the ruling today and through the appeals process.

 It is worth remembering that although we have increased clarity on business interruption claims, the Covid-19 impact on insurance businesses is far broader. Although today will provide some certainty as to how much insurers may pay out for these claims, the Covid-19 impact on other lines of business in insurance is still significant and will impact insurers' results.

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