FCA pursues legal clarity over SME insurance policies
4 May 2020: Philippa Kelly, Director of ICAEW’s Technical Strategy Business Group, outlines what SMEs may stand to gain from the Financial Conduct Authority’s announcement on insurance cover.
Business interruption insurance
The Financial Conduct Authority (FCA) has announced that it will seek legal clarity around some aspects of business interruption insurance, alongside support measures insurers must offer to consumers and businesses impacted by coronavirus. These may be particularly relevant to SMEs needing to closely manage their cashflow through a time of reduced liquidity.
Many SMEs have found it unclear whether they can claim or are finding it difficult to claim on business interruption insurance policies taken out prior to the pandemic. While the FCA still thinks that the majority of policies won’t cover coronavirus-related interruption, there is a real variety of wording in these types of policies, with some significantly different to others.
For payouts to be made efficiently where there are valid claims, the FCA is looking to the courts to resolve the contractual uncertainty with some policy clauses.
This means there will be additional clarity around whether businesses have a valid claim. It won’t determine how much will be paid out, but it should give insurers a basis for doing so. Insurance companies are being given until 15 May 2020 to inform the FCA if they are responding to these issues, after which the court action will commence.
If, following any decision, businesses find they are still not covered under their policy, they can make a complaint to the insurer if they think the cover they requested or instructed is not what the policy is delivering. If the complaint is not resolved to their satisfaction, they can still access the Financial Ombudsman Service for Small Business.
On other types of cover used by businesses, insurers have been instructed to look at how they make sure policies are still delivering value when they can’t be used or aren’t functioning properly due to coronavirus. For example, liability insurance for a business that has been forced to close.
This could result in changes to how the benefits of the policy are delivered, a refund, or suspension of payments. If your business has policies which you are not able to claim on, or that give coverage for activities that are no longer possible due to the lockdown, speak to your insurer about how they will seek to make sure it provides value for money.
- For the latest news and guidance on the ongoing impact of COVID-19 for businesses and accountants, visit ICAEW’s dedicated coronavirus hub.