FCA has written to the CEOs of insurers following publication of the High Court judgment on the BI test case. It expresses its gratitude to the insurers that were parties to the case and to all those who have co-operated. The letter sets out FCA’s next steps and expectations on insurers and managing agents now. Key points in the letter are:
- there may now be situations where insurers feel the judgment gives enough clarity for them to conclude claims processes. Where this is the case, they should do so as quickly as possible. Equally, there will be situations where insurers will feel they need to wait to see whether a particular point will be appealed. Whatever the case, insurers should be clear in their communications to policyholders on what they plan to do;
- FCA will shortly update on timing of the consequentials hearing at which the Court will consider any applications to appeal;
- FCA sticks to its point made in April that claims should be (re)assessed and settled quickly, which includes making interim payments were appropriate – with the aim of avoiding the situation where slow payments exacerbate financial pressures;
- FCA calls for a “pragmatic, transparent and consistent” approach to interactions with policyholders over any remaining evidence, and it will not be pleased to see insurers putting up additional barriers or delays to paying valid claims. FCA plans to publish additional information to help with the process of providing and assessing appropriate evidence on proximity and prevalence;
- irrespective of possible appeals, insurers should be considering what they can do to progress the type of claim the judgment says should be paid, including all reasonable steps to ensure the claims can be paid and settled as soon as possible after any relevant appeals;
- insurers should be analysing the scope of any appeal and the implications on their relevant non-damage BI policy wordings where they have previously determined, under FCA guidance, that the test case may affect the outcome of claims generally. If the wordings were affected by the test case but the relevant questions are not subject to appeal, then they should be reassessing all potentially affected claims or complaints in line with FCA Guidance and FOS expectations, unless they have already settled on a full and final settlement basis. If the questions are the subject of an appeal, then, again, FCA expects the cases that the judgment says should be paid, so they get to the stage where they can be as progressed as possible when any appeal judgment is handed down;
- FCA noted to insurers in August the relevance of taking into account any Government support businesses may have had and noting that the treatment of support as income for tax purposes may will differ from how it should be assessed under a BI policy. FCA clearly states that the Government’s treatment of the Small Business, Retail, Hospitality and Leisure or Local Authority Discretionary grants for tax purposes is not a proper basis for insurers treating the payments as turnover under the policies, not a reason for applying them as savings against fixed business expenses. FCA expects firms to consider the treatment of support explicitly and at Board level and will follow up with individual insurers on this;
- firms should communicate clearly with policyholders who have made claims or complaints that are potentially affected by the judgment as soon as possible, and at the very latest should provide an initial update on the implications of the judgment by 22 September. This information should be as clear as it can be at the current time; and
- firms now have to update the information they previously provided to FCA.
The letter ends with a warning that FCA will use its full range of powers against firms that do not meet these expectations.