Multiple insurers are now paying out on business interruption policies ahead of a court hearing regarding the wording of ‘act of God’ or force majeure clauses.
City regulator the Financial Conduct Authority (FCA) is requesting legal clarification from the courts on whether the wording of insurers’ policies allows them to refuse claims related to the COVID-19 pandemic.
Many insurers have claimed their policies only cover damages to their office properties rather than the impact of social distancing measures brought into effect during lockdown.
Certainty for both sides
The Guardian reports the FCA asked a group of 56 insurers for clarification on 1 May which was then followed by multiple firms deciding to pay out.
A court hearing is scheduled for late July, with interim FCA chief executive Christopher Woolard claiming court clarification is the “quickest route” to providing certainty for both the policyholders and insurers.
Mark Heath, chief executive officer at insurance solutions provider ACIES MGU, told the Daily Update (2 June) he welcomed the news that some firms are starting to pay out.
“The FCA are standing up for the rights of customers with valid claims, which is good news,” he said.
However, Heath warned there will continue to be legal disputes for years to come due to further potential spikes and mutations of the virus.
He hopes greater digitisation in the industry, as a result of more people working at home during lockdown, will help to increase efficiency in triaging and resolving non-contentious claims.
However, he argues the industry is in for a difficult period, quoting figures from Lloyds of London predicting losses of over $100 billion as a result of non-life related insurance policies this year.
The Association of British Insurers (ABI) has also claimed that UK insurers are liable to pay out £900m in business disruption claims.
Heath said Coronavirus presents a unique problem for the industry in that its impact has been “universal” rather than “limited to geography”, meaning the industry has been unable to “diversify risk.”
He warned that firms are already starting to introduce “coronavirus” clauses, including clauses excluding pay-outs for respiratory diseases or possible mutations of the virus.