FCA Business Interruption Test Case: finalised guidance

United Kingdom

On 17 June, the FCA published finalised guidance setting out the regulators’ expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption (“BI”) policies during the test case. The guidance comes into immediate effect.

The finalised guidance largely mirrors the draft version, which is discussed in detail in this article. However, a small number of changes and clarifications have been incorporated as a result of the feedback received by the FCA. Most notably, the FCA has extended the deadlines for the completion of the policy wording review and review of existing claims and complaints to three and four weeks respectively.

Finalised guidance

This guidance sets out the FCA’s expectations for insurers and insurance intermediaries when handling claims and complaints for BI policies during the course of the test case, namely:

  • Identifying the potential implications of the test case on their decisions regarding claims and complaints;
  • Keeping policyholders informed about the test case and its implications; and
  • Treating policyholders fairly during the test case and when it is resolved.

The FCA recommends that the guidance should be read alongside other key documents from the test case including the particulars of claim, representative sample of wording, questions for determination and issues matrix. Our most recent article provides more information on the documents the FCA filed at court.

The guidance applies to:

  • An insurer which, before the date that the test case began, underwrote a relevant non-damage business interruption policy.
  • A managing agent which, before the date that the test case began, performed functions for a member of Lloyd’s in respect of a relevant non-damage BI policy (and references to ‘insurers’ in this guidance should be read as including managing agents).
  • An insurance intermediary which carried out insurance distribution activities in respect of a relevant non-damage BI policy before the date that the test case began (but only the paragraphs of the guidance which specifically refer to insurance intermediaries under the heading ‘Communicating with policyholders generally during the test case’ apply).
  • The Society of Lloyd’s (but only the paragraph of the guidance which specifically refers to the Society under the heading ‘Co-insurance’ applies).

Feedback Statement

The FCA also published feedback statement (FS20/8) alongside the final guidance which provides feedback on the draft guidance published 1 June.

In FS20/8, the FCA responds to feedback and explains the amendments made to the draft guidance to address the concerns raised and clarify the FCA’s expectations. The finalised guidance includes changes or additions in light of the feedback to:

  • Clarify that the scope of the guidance is restricted to relevant non-damage BI policies.
  • Confirm that the guidance has the same scope as the rules it gives guidance on. Therefore firms should have regard to ICOBS 1 and DISP 1.1 in determining whether and how the guidance applies to their portfolio of relevant non-damage BI policies.
  • Make clear within the guidance that coverage issues relating to clauses that have an exhaustive list of notifiable diseases which does not include Covid-19 or to clauses which require the disease to be present on the insured premises are not included in the test case.
  • Clarify the FCA’s expectations of insurers’ reviews of their relevant non-damage BI policies to allow them to classify and report all ‘disease’ or ‘denial of access’ or similar coverage clauses in two categories; those where the outcome on claims generally (including questions of causation of loss) may be affected by the final resolution of the test case, or those where that outcome won’t be affected.
  • Extend the proposed timelines for review and communication to the FCA to 3 weeks, and for individual communication to policyholders who have made claims or complaints to 4 weeks.
  • Provide more details and clarity on FCA expectations of how firms should handle claims and complaints during the period when the test case is ongoing and the parameters around their actions

Next steps

The FCA expect insurers covered by the finalised guidance to:

  • Appoint a senior manager to oversee all expectations on an insurer that are set out in the guidance;
  • Publish updates about the test case and its implications for potential claims under relevant policies on their website or through other general means. This should be published with sufficient detail and with appropriate prominence and signposting to keep all policyholders with relevant non-damage business interruption policies updated. This should be published promptly after 17 June 2020;
  • Review policy wordings to determine whether the outcome of the FCA’s test case may impact their claims and complaints handling for relevant policies. This review should be reported to the FCA in the reporting medium to be provided by the FCA by 8 July 2020;
  • Review relevant existing claims and complaints to reflect the results of the policy wording review. The results of this review should be notified to each relevant policyholder by 15 July 2020. If the insurer proposes to wait until the final resolution of the test case before coming to a decision on a potentially affected claim or complaint then this should also be explained alongside confirmation that the matter will be dealt with promptly on final resolution of the test case. Each of these policyholders should also be provided with updates of the test case within one week of specified milestones taking place;
  • Reassess previously rejected claims and complaints. This should take place following the final resolution of the test case. Again, the results of this reassessment should be notified to relevant policyholders.

The FCA will review the guidance in light of the progress of the test case and in any event within six months of it coming into effect to assess whether it is still needed.

Article co-authored by Anna Burdzy