Will the FCA’s action settle the issue?
>Business interruption is a particularly complex area and a good example of the coverage uncertainty which affects many other classes of insurance.
The approach taken by the FCA is laudable. The declarations the courts make will provide a legal basis for speedier and less costly settlement for many policyholders.
However, in isolation, it will not solve the problems in their entirety, and we fully expect Covid-19 related disputes to roll on through the months and years ahead for two primary reasons.
Firstly, the FCA has limited its attention to just one class of insurance: Business Interruption.
While this is the class that most claims will fall into, it is not the only place in which related cover can be found, and even within BI the FCA case addresses only some of the coverage questions noted above.
This means that there will be a raft of similar potential claims that will be unaffected by the court’s declarations.
Secondly, and more importantly, the action is limited to an examination of the validity of claims based solely on the policy wordings.
This, in isolation, will not get to the heart of what has gone wrong in the industry over the last two decades.
Opaque policy wordings, confusion on the part of the buyer as to what is covered, and cosy relationships between insurers and brokers are all part of a broader set of structural issues that the FCA needs to get a much firmer grip on.
Most important among these systemic problems is the role of the insurance broker.
This seems to us to be a major omission on the part of the FCA, and at the end of May we addressed a letter to them outlining our concerns in this area.
In theory, brokers play an essential role in advising clients on what insurance to buy, who to buy it from, when they have a valid claim and how to go about managing it.
They are the intermediary that clients turn to for guidance; guidance that they are dependent on precisely because insurance contracts are now so difficult to understand.
It is our view that policyholders who believed they had valid cover in place may well decide that the broker has either failed to place it as instructed or has failed to communicate the limitations inherent in the policy wordings they have been offered. In such cases they could accuse their broker of giving them poor advice or even, in some cases, of mis-selling.
Similarly, if a client has been advised that they do not have a valid claim only to find that the High Court (or a legal ruling from a similar dispute) proves otherwise, they may seek indemnification from the broker.
