Advice & Best Practice

The insurance market reacts to the Covid-19 pandemic

As the UK approaches the next phase of the coronavirus crisis (Covid-19) many questions are being asked about the impact the pandemic has had on the economy and what the future may hold. With implications for consumers and businesses alike, the insurance industry has a pivotal role to play in charting a course forward.

While the magnitude and duration of the pandemic remains uncertain, businesses have been turning to their insurers to assist them during the crisis. In the face of a surge in demand and huge uncertainty, the insurance industry has thus far been unsure how to react.

Concerns facing the insurance industry

Questions around coverage for losses arising from Covid-19 are the main source of uncertainty. Until recently, insuring against the risk of a pandemic, for some, was considered to be a non-essential business expense. Financial services regulators are working collaboratively with the Government to ensure firms are supported to fully protect consumers, businesses and the economy.

An area of concern has been the responses from insurers to business interruption claims. The pandemic has caused a vast increase in the number of claims with the added expectation of responding to those claims positively and swiftly. However, some insurers have been issuing blanket declinatures in respect of business interruption policies rather than examining each claim on the facts of the case. This approach has resulted in criticism.

The Financial Conduct Authority (FCA) issued guidance setting out its expectations with respect to insurers’ conduct during the pandemic, especially in relation to business interruption insurance.

Fraud and cybercrime

The pandemic is likely to create opportunities for fraudsters and as a consequence of new remote working practices business leaders will be focusing their resources on operational resilience rather than compliance.  The financial services sector is at risk of complaints arising from fraud and cybercrime. The FCA recognises the need to reduce financial crime, including money laundering and fraud such as:-

  • insurance fraud
  • investment fraud
  • employee fraud
  • fraudulent claims
  • use of third parties who have not been sufficiently vetted and screened
  • misappropriation of assets
  • duplicate and/or false invoicing for work not carried out

Cybercriminals are also exploiting the rise in remote working, with authorities issuing information about the increase in phishing attacks and scams.

The Financial Ombudsman Service (FOS) has urged insurers to “think beyond a strict interpretation of the policy terms and consider carefully what’s fair and reasonable in each case, taking into account the unprecedented situation”.

It is appreciated that insurers are finding themselves in uncharted territory, and in order to try and minimise the levels of uncertainty, the FCA confirmed that it will seek clarity from the courts on the extent to which business interruption insurance should be responding to losses suffered as a result of the virus4.

Given the number of claims, the approach being taken by the FCA may be the most sensible way to resolve the common issues given the length of time it takes to deal with litigation and the high level of costs involved. It is accepted that the outcome of the action being taken by the FCA will not resolve all the issues, but will hopefully provide some certainty.

The FCA Business Plan

The FCA recently published its Business Plan for 2020/2021 and part of that plan focuses on managing the threats of Covid-19 by ensuring that:

  • Markets are functioning well
  • The most vulnerable are protected
  • The impact of firm failure is minimised
  • Scams are tackled
  • Consumers and small firms are treated fairly

Vulnerable clients

The need to treat vulnerable consumers fairly should already be embedded in firm culture, but consumers previously not considered vulnerable may now fall within the FCA’s definition of a ‘vulnerable consumer’ as a result of Covid-19.

Firms should be identifying those at risk of being a vulnerable consumer at an early stage, to ensure they receive appropriate advice and are aware of the risks and options available to them. This will include ensuring that consumers are not becoming too indebted, are not being given credit they cannot afford, and are not being exploited by excessive fees and charges.

Effective investment decisions in a volatile market

The unpredictable economic impact of the pandemic has resulted in financial markets globally becoming extremely volatile, with investor appetites varying.  Firms advising businesses and consumers about investment products must continue to provide the best possible information, especially in relation to the risks of investing when markets are volatile. Firms need to ensure that the products they are advising upon continue to be appropriate for their consumers’ needs, deliver value for money and are marketed in a fair and non-misleading way to avoid the risk of any future complaint or claim about mis-selling.

Complaints and Covid-19

Complaints arising from the pandemic are not surprising and are set to rise further. However, complainants are being warned to expect delays in dealing with and responding to their complaints as a result of unprecedented working practices.  Complaints are dealt with by FOS then the settlement awards will vary to the limits applicable at the time of the advice given, which will potentially have a significant impact on firms and their insurers both financially and reputationally.

The FCA expects firms to take all reasonable steps to continue handling and investigating complaints competently, diligently and impartially. They will take robust action against any firm seeking to take advantage of the pandemic and failing to meet minimum requirements. Firms should ensure that policies and procedures are operationally resilient and adequately deal with the new challenges they face.

For the financial year ending 31 March 2020 (just prior to lockdown) the level of fines imposed by the FCA was just over £224m and this figure could increase as a result of Covid-19. It may be that firms are not intentionally failing to meet the minimum standards because of working in such unprecedented times, but the evidencing of action taken and documenting the decisions made will be what determines whether enforcement action will be pursued or not.

Next steps

It would appear that the FCA are currently focusing on insurers rather than brokers for now, which provides some assurance from the intermediary perspective. However, we do not know what will happen next.

There is much uncertainty about what impact Covid-19 will have on the insurance industry and the financial services sector and what the post-pandemic landscape will look like. The court’s response to the FCA’s request for clarity in relation to the business interruption policy wording is being keenly watched as is the outcome of the first wave of Covid-19 related complaints being dealt with by FOS to fully understand the true effect the pandemic has had and how to successfully minimise the risks and challenges going forward.


By Duncan Philpott, Paul Afteni, Joanne Cracknell

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