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How the UK’s Financial Conduct Authority case will have global ramifications 

The way policyholders are insured against pandemics and other business interruption events is set to change after a landmark ruling in the United Kingdom. 

The Supreme Court of the United Kingdom recently ruled in favour of policyholders required to close as a result of government lockdowns, with costly and wide-reaching ramifications likely for the carrier industry.

We knew early in the pandemic that the fallout of COVID-19 would cause considerable change in claims trends and risk exposure in the mid to long-term, and one year on it is safe to say this change is continuing. While many markets and consumers are fatigued by news around the pandemic, it is unfortunately a reality that will continue to shape economies, communities, and businesses for many years to come.

Let’s dive into the broader impact of the FCA case, how business interruption challenges will play out in the future and how carriers can best prepare.

What does the FCA case really mean?

Normally, when we refer to ‘surges’ we are talking about the impact of a severe weather system or catastrophic event and the thousands of claims which result. In this case, we consider the UK ruling in favour of policy holders a surge event. These are insureds who may have been interacting with their UK provider for many months but have been, to date, told their claim is ineligible.

Now, depending on the next steps of the FCA, many of these policyholders could expect immediate action on their claims almost overnight. The internal pressure on claims teams to field calls, handle complaints, complete assessments and negotiate in a new policy space will be undeniably difficult.

As similar cases continue to be tested in other regions, it is not enough for carriers to simply watch and wait for another difficult judgement to be handed down. If similar rulings are made in your region, your team could be facing one of the biggest surges it will ever experience.

But the surge itself won’t be the only challenge if recent global examples are setting the path. Australian insurers have been targeted by media and the general public for their handling of business interruption claims from hard hit small businesses. When Australia’s Federal and State governments imposed strict inter-state border closures, months long shutdowns of businesses and other stay-at-home orders, hospitality and tourism operators were crippled. Insurers in Australia have so far rejected claims from businesses impacted by shutdowns based on an outdated referral to the Quarantine Act 1908 (Cth), an Act that was repealed and replaced with the Biosecurity Act 2015 (Cth).

While the legalities around this continue to play out, media profiling and social inflation of these issues has contributed to a David versus Goliath battle. Cases of small business tourism operators who have seen their trade drop by as much as 95 percent have featured heavily in the media and have successfully turned bias against insurers.

Whether it’s a surge in cases or media clips, no carrier is immune to damage in this situation.

How can carriers best protect themselves?

If 2020 was the year of unprecedented challenges, 2021 is set to be even bigger as the snowball impact of COVID-19, increasingly intense weather systems, and political friction continues to grow. To make sure your organisation is in the best position possible, you need to build a strategic game plan for managing your supply chain, workloads and action lists for the inevitable surge programs carriers will need to enact this year.

Start with revising your risk register to better identify the opportunities and challenges your policyholders could face this year. From increased intensity of severe weather events to climbing rates of chronic illness and disease, our environment is simply becoming riskier and we all need to think outside the box when planning for the risks ahead. Ensure your team is across any legislative amendments or impacting legal decisions on coverage for pandemic-induced business interruption and has a plan in place for how you will respond.

Make sure you have worked through what the impact of an FCA-style ruling would be on your business, and how you could adequately resource that program of work. Would your team still be able to meet expectations if a natural disaster occurred at the same time? How much pressure could be applied before your team could begin to slip?

When considering how you will resource the claims surges of the year ahead, make sure you explore the skill, competency, and capability limits of your team and whether planning to outsource before the pressure mounts could result in a better outcome. Employing an external expert to support your team through challenging times can take the pressure off and ensure you are still meeting best-practice measures.

Program planning for the changing landscape of claims surges essentially comes down to thorough and effective project management. Our proven project management framework has helped many carriers guide their teams and clients to success in challenging circumstances.

The future of events triggering surge in claims volumes, such as seen with COVID-19 business interruption, will not stop changing, and carriers must be ready to adapt swiftly as the environment around them changes. This is why we’ve established the GB Business Interruption team to be the first point of truth for best-practice management of BI surges. To connect with a member of the GB Business Interruption team, reach out to us here.

Pete Diskin

Chief Client Officer, GB Australia

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