Many SMEs may not be eligible for insurance payouts over the coronavirus lockdown, the FCA has warned, adding that it would not intervene on behalf of the businesses.
In an open letter to insurance chief executives on Wednesday, the authority said it found that most claimants did not have the right coverage to warrant a payout during a pandemic.
The letter, written by interim chief executive Christopher Woolard, said: “Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic.
“While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances.”
However, Woolard said that there are policies where it is clear that the firm has an obligation to pay out, and it is important that these claims are assessed and settled quickly.
He said: “A key objective of the FCA is to ensure that financial pressures on policyholders are not exacerbated by slow payment, rather, such claims should be paid as soon as is possible.”
He added that if there are reasonable grounds to pay part of a claim but not make the payment in full, it would like the board of the insurance firm to adopt an approach of making interim payments.
Woolard said: “If you disagree with doing so, we would like you to send to us the grounds for reaching that decision, including how you believe it represents a fair outcome for customers.”
The letter also told executives that in cases where a policyholder is a small business with an annual turnover below £6.5m, it will likely fall within the jurisdiction of the Financial Ombudsman Service and therefore provide struggling firms with “more timely payments”.
The FCA also announced that from today (15 April) it has established a new small business unit headed by Andrew Wigston.
The unit will work to coordinate the activities of the FCA across small business issues, and ensuring regulated firms are “supported through the challenges posed by the current crisis”.
It will also gather intelligence regarding the treatment of small businesses by financial services firms during the crisis and ensure that there is a coordinated response by the FCA any issues that may be identified.