By Huw Jones and Carolyn Cohn
LONDON (Reuters) – Britain’s financial watchdog said it would urgently ask the courts to clarify uncertainty over whether businesses can claim compensation for disruption caused by the coronavirus pandemic.
The Financial Conduct Authority (FCA) also told all insurers to assess whether they should be giving partial policy refunds during the pandemic.
A national lockdown to fight the pandemic has forced many companies to temporarily suspend operations and furlough staff.
“We have been clear that we believe in the majority of cases business interruption insurance was not purchased to, and is unlikely to, cover the current emergency,” FCA interim chief executive Christopher Woolard said in a statement on Friday.
“However, there remain a number of policies where it is clear that the firm has an obligation to pay out.”
Lloyd’s of London insurer Hiscox is among firms that have come under pressure from small businesses to pay out for business interruption, along with FTSE 100 insurer RSA French insurer AXA and Australian firm QBE.
The FCA said it had written to “a small number of firms” to ask if they were declining business interruption claims. It said it would seek a response by May 15 and then “consider which firms to ask to join the court process”.
However, the FCA said court action would not determine how much could be payable under individual policies.
QBE said the FCA had not written to it. The other insurers did not immediately respond to requests for comment on Friday. Insurers previously said they seek to pay valid claims quickly.
The Association of British Insurers said it would “support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered”.
ABI Director General Huw Evans in a statement also said that the vast majority of business interruption policies did not cover pandemics and noted the UK government had confirmed it would not seek to retrospectively change contracts.
In the United States, eight states have introduced legislation which would require insurers to pay claims, mainly to small businesses, despite exclusions.
The British Insurance Brokers Association said the FCA’s move to obtain clarity on business insurance was a step in the right direction, while Alistair Handyside, executive chair of The Professional Association of Self-Caterers, said many members believed they were covered and he would be sending a report to the FCA.
In guidance that will come into effect in mid May, the FCA suggested insurers could help struggling customers with premium payment holidays or the waiving of administration, cancellation and missed payment charges.
Insurers will also have six months to check whether their products still deliver the benefits promised, the FCA said.
For example, it said boiler cover insurers may not be able to offer the annual service included in many policies, while liability insurance may not currently be relevant to businesses such as hairdressers, bars and restaurants that are closed.
Insurers could refund some premiums or suspend monthly payments for a certain period of time, the FCA said.
Motor insurer Admiral has refunded 110 million pounds to customers, following rebates made by top U.S. motor insurers.
Peel Hunt analysts said they expected other UK insurers to follow, given refunds have been “mandated by the regulator”.
(Additional reporting by Muvija M., editing by Kirsten Donovan)