Last month, the Financial Conduct Authority (“FCA”) published updated guidance regarding COVID-19 business interruption settlements and deductions made for Government support.
The FCA first commented on this issue in August 2020, following reports that some insurers were making deductions for Government support received by policyholders, when calculating payments for business interruption insurance claims.
The FCA’s recent statement follows its January “Dear CEO letter”, which we discussed in our previous blog post here. In this letter, the FCA re-iterated its expectations that insurers should only deduct Government support from claim payments if the appropriateness of such a deduction has been thoroughly considered and the insurers’ conclusions properly documented.
The FCA’s updated guidance sets out the factors which insurers must assess when considering whether deductions from claim payments are appropriate. The assessment should consider:
- The exact type and nature of the Government support.
- How the policyholder used this support.
- The type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy.
These matters should also be reflected appropriately in insurers’ communications with policyholders when making settlement offers on business insurance claims. The FCA warns that it may intervene and take further action where firms do not appear to be meeting the FCA’s expectations and are treating policyholders unfairly.
The FCA has also reminded insurers that during discussions in September between the Association of British Insurers (“ABI”) and the Economic Secretary to HM Treasury, the ABI issued a list of firms that had agreed not to deduct certain Government grants from claim payments (which we reported on here). In its recent statement, the FCA has confirmed that even where the insurer is not listed, it must still consider the appropriateness of deducting small business grants from claim payments.
Comment
Insurers should ensure they are appropriately considering the factors highlighted by the FCA, on a case-by-case basis, when making and concluding settlement offers on business interruption claims. The FCA’s statement makes clear that even where it is appropriate in principle to deduct government support, a single, uniform approach to such deductions is still unlikely to be appropriate.