UK regulator criticises insurers on handling of Covid-related claims

Some insurers have “fallen short” on handling coronavirus-related business interruption claims, while others have failed to meet regulations consistently, the UK’s financial watchdog has warned.

The Financial Conduct Authority said on Tuesday that it would use “all regulatory tools” to rectify the “significant issues” it had encountered when analysing insurers’ handling of such claims.

Business interruption claims have been at the centre of a series of disputes between insurers and policyholders since the start of coronavirus lockdowns in March 2020.

Many insurers have challenged the sums that businesses claim to have lost, leading to court cases aimed at settling the extent of insurance obligations.

The Supreme Court in January last year ruled on a test case brought by the FCA to get clarity on the interpretation of wording commonly used in business interruption policies in an effort to speed up decisions on thousands of claims by small and medium-sized businesses. The authority said on Tuesday the case had led to the payment of £1.5bn in claims to 36,000 small businesses.

Three key cases about larger claims were heard in June and July this year but the High Court has not yet delivered its judgment.

Tuesday’s statement by the regulator also highlighted cases where insurers had handled cases well, including making interim payments based on incomplete information and making an effort to issue statements to help policyholders.

The FCA also said senior executives at some insurers lacked clear information that would allow them to identify the causes of hold-ups in payments.

The FCA report said claims handlers sometimes lacked easy access to the wording of policies. The authority also criticised some insurers had dealt with customers. It said requests for information from some small businesses had been “burdensome and excessive”, and added that some firms failed to identify vulnerable customers or dealt with them inconsistently.

Sheldon Mills, the FCA’s executive director of consumers and competition, said the watchdog had been working alongside insurers to ensure claims were settled quickly but it was not complacent.

“Today’s report is clear that, while we have observed good practice, there are lessons to be learned for the handling of all claims,” Mills said.

The Association of British Insurers said it would continue to work closely with the FCA to ensure the sector learned from the “unprecedented challenges” of the pandemic.

“Supporting customers is at the heart of our members’ priorities, particularly during the claims process,” it said.

Alexis Roberts, head of financial services for law firm Pinsent Masons, said most insurers focused “very hard” on meeting their Covid claims “quickly and efficiently”, even though few had experience of responding to something of such scale and complexity.

“It’s fair to say also that many policy wordings, because the circumstances were unprecedented, did not have the right degree of clarity around how the insurance cover should respond,” Roberts said.

He added that the sector had “moved quickly” to address those issues and the of resolving problems had “gathered pace” in the time since the first claims were submitted.

The FCA said “all regulated firms” were expected to conduct business in line with the authority’s rules and regulatory requirements.

“It is evident from our work on BI claims handling that some firms have fallen short in meeting those requirements or have not met those requirements consistently,” it said. “We have seen several significant issues through our BI work and, where necessary, we will consider using all regulatory tools to rectify these issues.”

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