Articles - Swift action needed now after FCA Business Interruption case

The FCA has laid down the gauntlet in its efforts to resolve contractual uncertainty in BI insurance due to the COVID-19 pandemic with a test case at court.In terms of scale, approaching 56 insurers and reviewing over 500 relevant policies from 40 insurers is a major effort, but only to be expected on such an important issue.The court action being taken is aimed at providing clarity and certainty for policyholders and insurers involved in these BI disputes. For those in the actuarial sector entrusted with modelling and forecasting those policies the ramifications are clear to see.

 By Kareline Daguer, financial services director at PwC

 The regulator is providing detail on the proposed test case, including identifying a representative sample of 17 policy wordings to be examined by the court, insurers that use those wordings, and which of those insurers have agreed to participate in the legal proceedings. 

 Alongside this, the FCA also published draft guidance setting out expectations for general insurers and intermediaries handling BI claims and complaints that might be impacted by the test case results..

 Workload: in summary

 Under the proposed guidance, firms will have two weeks to identify policies, claims and complaints that are likely to be affected by the test case. Within a further week following identifications firms will have to inform claimants or complainants about the test case before providing updates at specific points as the test case progresses through the courts. The timings can prove challenging for many firms who are yet to carry out analysis of their non-damage BI policy wording.

 The guidance also contains general and policyholder specific communication requirements until the test case is completed. Expected timelines, assuming the test claim is filed on 9 June, include completing BI policies categorisation and provide the results to the FCA by 23 June.

 By 30 June, firms must notify policyholders that have made a claim or a complaint whether or not their claim or complaint is a test case claim or complaint and the reasoning behind this determination.

 The detail: what do firms need to do now? 

 The guidance is proposed to take effect from 9 June 2020, the date on which the FCA intends to file its claim in court. The FCA proposes to require insurers to identify and categorise policies that provide cover for business interruption losses in circumstances where there has been no physical damage to the insured property and where pandemic-related claims are not being paid in full (‘BI policies categorisation’).

 Insurers will need to classify these policies into one of three categories: a) test case impacted b) test case may provide guidance but claims decisions not affected c) not test case impacted, using the representative sample of 17 policy wordings that capture the key issues as a reference point.

 Firms should appoint a senior manager responsible for overseeing this project and consider how to identify policies, claimants and complainants within the required timeframes. Having the right governance in place will be key to be able to demonstrate reasonable steps in carrying out this exercise, appropriate documentation of rationale around decision making should be a priority.

 Insurers will need to draft a project plan and consider the tools and resources needed to meet deadlines as these are very tight. Businesses should also commence reviewing and updating claims and complaint procedures, customer documentation and underlying IT systems, including preparing for settling claims soon after the test case is completed possibly towards the end of the summer.

 As the FCA says, the aim is to “achieve clarity for all concerned in an unprecedented situation”. Actuaries and the wider sector will be front and centre of this activity.



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