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Law360, London (April 15, 2020, 1:59 PM BST ) The Financial Conduct Authority said on Wednesday it will not make insurers pay out on claims for business interruption arising from the coronavirus lockdown if they do not have specific pandemic cover in place.
But the regulator said that claims should be paid out fast on policies where the insurer has a clear obligation to offer compensation. Insurers are concerned that regulators could intervene to force all business interruption policies to retrospectively cover losses arising from the pandemic, in a way similar to that being proposed in the US.
"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," the FCA said in a letter to insurance chief executives.
"While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances," the letter, from interim FCA chief executive Christopher Woolard, added.
The Chartered Insurance Institute, a professional standards body, welcomed the FCA's decision not to intervene where policies do not cover pandemics.
"The insurance sector has an opportunity to demonstrate that its ability to pay claims quickly is better than most people perceive it to be," Keith Richards, managing director of engagement at the institute, said.
The FCA said insurers should not hesitate to pay out on claims when they are required to do so.
"There are policies where it is clear that the firm has an obligation to pay out on a policy," Woolard said in the letter. "For these policies, it is important that claims are assessed and settled quickly."
The regulator said that if a claim was contested and an insurer felt it should pay only part of it, the company should pay that part immediately. Insurers that are reluctant to make an interim payment should write to the regulator and set out the reasons why, setting out why their decision "represents a fair outcome for customers."
"Your firm's decision is likely to help inform our assessment of its culture," the FCA added.
A PR company said on Sunday that it was considering whether to bring group litigation against Hiscox, over the insurer's failure to pay out on claims for interrupted business even when there was a "notifiable disease" extension in its policy.
The PR company said on Wednesday that it has written to the regulator over its dispute.
"The damage that Hiscox Insurance is doing to thousands of small companies by refusing to honor their contracts is huge, and we would ask the FCA to do everything it can to force Hiscox to change its mind," Mark Killick, creative director at Media Zoo, said.
Hiscox has said that the policy was not intended to protect against pandemics, which were "simply too large and too systemic for private insurers to cover."
--Editing by Ed Harris.
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