What the FCA case means for global policies
It is a common perception that insurance policies are complex, challenging, and designed to skew in favour of carriers. While those of us in the insurance industry believe this isn’t true, we still have significant work ahead of us to overcome this perception and offer trusted, well-received and comprehended policies.
The recent Financial Conduct Authority (FCA) case in the United Kingdom brought this issue to light again, with the Court’s comments making it clear policy wording had shaped the outcome of this case, with more than 700 policies likely to be impacted.
This is an issue we expect to continue to play out around the world, as cases testing the strength of business interruption policies, in light of COVID, conclude and social inflation continues to grow.
There were three core areas the UK FCA case raised which we expect to see mirrored in other regions:
1) Disease exclusions
The Court found that these exclusions were often overlooked when it came to updating policies and queried what value the policy could offer if it did not cover the impact of disease. It also questioned whether COVID could be excluded as it was not a general disease, and the restrictions around whether a disease had presented close to the claimant’s business were criticised. The carrier’s argument was that it was impossible to prove a single, local case of COVID impacted a business, but this was negated by the Supreme Court’s finding that each and every case of COVID was an equally effective cause of the government’s reaction to the pandemic.
2) Prevention of access or general exclusion clauses
Policies with these clause types were relied upon by carriers to expressly provide against cover, but where the Court found this failed was that exclusions cannot apply where a carrier has given an express grant of cover with one hand and taken it away with another.
It is understandably confusing for a policy holder to read they are both covered and not covered, but this judgement will have far-reaching consequences for the industry. Hundreds of policies make specifications around what can and can’t be claimed for, and if we can no longer state general exclusions it will have major impacts to claim costs.
3) Quantification argument
The Court found carriers excluded or removed the benefits of coverage by arguing the insured risk was limited to the number of cases in that specific area, so there would have been minimal or no loss because the business may not have been impacted at all by local cases. But, the Court argued that due to its issues with disease exclusions, insurers would now need to consider what position claimants would be in if we were in a COVID-free world.
So, where to from here?
Carriers need to ensure they, and any of their suppliers or TPAs, are across changes to legislation and business interruption test cases in their region. As an industry, we also need to consider how we build and present policies to policy holders and whether they are truly fit for purpose in a world that has drastically changed.
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