A ‘Dear CEO’ letter written by Christopher Woolard, interim chief executive of the Financial Conduct Authority (FCA), has been sent to firms writing business interruption insurance cover following the judgment handed down in The Financial Conduct Authority v Arch and Others (Test Cast). Mr Woolard thanks the firms who participated in the Test Case for their co-operation and desire to avoid protracted litigation. The letter seeks to clarify the FCA’s next steps and expectations of insurers over the coming weeks and months.
Where the judgment has provided clarity to insurers who feel they are able to concluded claims processes, Mr Woolard encourages such claims to be processed as quickly as possible. In some cases insurers may determine that they must wait for clarity on a particular point in the judgment on appeal. (A consequentials hearing is timetabled for 2 October 2020.) The FCA expects firms to write to policyholders in the coming week setting out their proposed next steps. The ‘Dear CEO’ letter sent in April 2020 stated that the regulator’s objective was to ensure that slow payment does not exacerbate financial pressures on policyholders. Accordingly, interim payments should be made wherever possible and claims assessed and settled quickly.
Mr Woolard comments in the letter that the FCA expects “all insurers to take a pragmatic, transparent and consistent approach to their interactions with policyholders over any remaining evidence that applies to individual claims, rather than these creating additional barriers or delays to paying valid claims. This includes evidence for proximity and prevalence for ‘disease’ coverage clauses”. Insurers should ensure that claims are progressed to the point that they are ready to be paid and settled at the earliest possible opportunity after any relevant appeal.
Firms are reminded about the August 2020 statement on deductions to payments for some types of Government support received by policyholders during the pandemic. Firms are requested to consider the appropriateness of making such deductions on a case-by-case basis and treat their customers fairly. Furthermore, the FCA states that the treatment of any forms of Government support as income for tax purposes may well differ from how the support should be assessed under a business interruption policy. Tax considerations typically do not form any part of the calculation of losses for business interruption policies. The FCA therefore does not consider the Government’s treatment of the Small Business, Retail, Hospitality and Leisure or Local Authority Discretionary grants for tax purposes is a proper basis for insurers treating those payments as turnover under the policies. Nor does the FCA see that insurers can apply these amounts as savings against fixed business expenses.
What is clear is that the FCA does not wish to see any firms using an appeal to the Test Case as a reason to delay payments under any policies. Where the claim is not affected by a point subject to appeal, it must be paid. If the claim cannot be settled as the point must be clarified, insurers are being asked to ensure that payments (where appropriate) can be made shortly after the outcome of any decision on appeal.