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(Alliance News) - The UK Financial Conduct Authority on Monday has outlined the insurers who will be taken to task in its Business Interruption policy court case.
Previously, the watchdog has written to insurance firms, telling them how it expects them to handle claims by small and medium enterprises against business interruption cover during the Covid-19 pandemic.
The FCA has sought a court declaration to resolve the contractual uncertainty around the validity of many BI claims. The regulator said it is looking to "achieve clarity".
Interim Chief Executive Christopher Woolard said: "The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike. We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market".
As part of this process, the FCA has contacted 56 insurers and reviewed over 500 relevant policies.
"We have identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute," the regulator added.
Among the insurers that use the policy wording highlighted by the FCA is London-listed Aviva PLC, RSA Insurance Group PLC and Hiscox Ltd. European peers Zurich Insurance Group AG, Allianz SE and AXA SA were also cited.
The FCA has asked RSA, Hiscox and Zurich - among other smaller firms - to help with the court case, however.
"From all the policies we reviewed, we have selected a representative sample of 17 policy wordings to give as much clarity as possible to both insurers and policyholders alike. Rather than select firms by market share, we have identified policies which are representative of the key arguable issues and invited insurers to participate on the basis of securing the maximum relevant coverage for relevant policies whilst minimising the number of parties engaged before the court in order to make the process as swift as possible for the court," the regulator explained.
Woolard added: "The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court".
RSA Insurance, Hiscox and Zurich all said they "welcome" being part of the case.
RSA noted, as at the end of April, it had received valid claims across travel, wedding cancellation (UK only) and commercial lines business interruption and related policies with an estimated cost of about GBP25 million net of reinsurance. This has not "materially changed", RSA said Monday.
RSA said: "The FCA has made clear in their statement that in selecting policy wordings and insurers for the court case they have sought breadth of coverage across the key arguable issues, whilst minimising the number of parties engaged before the court. Market share has not been a determining factor in selection, and RSA's inclusion is not representative of its market share on the relevant policy wordings. The FCA expects the outcome of the court proceedings and related rulings to be directly relevant for all insurers providing business interruption insurance in the UK".
RSA also noted previous statements from the FCA saying the great majority of business interruption claims are not expected to be eligible under their coverage terms for Covid-19, and the court proceedings seek to address the legal interpretation of just a small minority of policies and schemes.
"RSA has a comprehensive reinsurance programme, with core catastrophe covers in place across the group (including the UK) as well as a group-wide aggregate protection. These arrangements (described in the group's full year results) are expected to provide substantial protection in the event that downside claims scenarios were to arise," the FTSE 100-listed insurer added.
Hiscox said it recognises "these are extremely difficult times" and noted it is "committed to seeking expedited resolution of any contract dispute". The insurer said its capital position remains "robust".
Zurich said, based on an internal review, its wordings do not provide cover for business interruption in relation to the Covid-19 outbreak.
"This view is further supported by the limited numbers of claims received to date by Zurich's UK business in relation to business interruption, and the very low level of disputes over coverage experienced by the group," the Swiss insurer added.
On the basis of this opinion, experience to date and Zurich’s scenario analysis, the company remains "confident" that its total P&C claims cost for the full year will remain in line with the approximately USD750 million guided for in its the first-quarter update - though did note this is "subject to significant uncertainty".
In the "unlikely event" that the UK High Court were to judge that all industry wordings reviewed in the FCA process do provide cover for business interruption in relation to Covid-19, then Zurich estimates that this would result in about USD200 million of claims net of reinsurance.
By Paul McGowan; paulmcgowan@alliancenews.com
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