The FCA’s Business Interruption Insurance Test Case: What Now?

The business interruption insurance test case brought by the United Kingdom’s Financial Conduct Authority (FCA) made its way to the country’s Supreme Court in November 2020. The Supreme Court’s final 112-page judgement was issued on January 15, 2021, whereby the court unanimously dismissed the insurers’ appeals and allowed all four of the FCA’s appeals.

The ruling on the initial case was described by the FCA as “probably the most important insurance decision of the last decade” and the Supreme Court’s judgement does nothing to change this. Its repercussions potentially reach much further than the 370,000 UK organizations who have business interruption insurance policies. It’s a similar story in South Africa where Santam, the country’s largest short-term insurer, is also heading for that country’s Supreme Court of Appeal with a case related to the coronavirus pandemic.

The Bigger Picture

At the heart of the FCA’s original case against eight insurers was whether business interruption losses caused by the pandemic are covered under certain insurance policies. But what does it mean for the insurance industry as a whole? The chairman of Lloyd’s of London Insurance Market said it’s a “wake-up call for the industry in terms of the wording of its claims” and we’ve already seen some UK insurers rewriting their policies to clarify the coverage that policies are providing.

This is the tip of a very large iceberg—impacting not just business interruption insurance but the entire industry. It serves to put increased pressure on insurance businesses to ensure greater clarification and simplification in policy wording, leaving no room for interpretation. That’s not to say that all policy wordings were found to be lacking, suggesting that it’s hard to take a broad approach to what is clearly an extremely nuanced situation.

The initial judgement may have been welcome news for policyholders but it didn’t say the eight defendant insurers were liable across all of the 21 different types of policy wording in the sample put in front of the court. It does not mean that all policyholders who have experienced issues regarding their business interruption policies can now expect payouts from insurers. Each policy needs to be considered individually against the detailed judgement, as recommended by the FCA itself, to work out what it means for that particular policy.

Make It Personal

This whole issue highlights the importance of a tailored approach when it comes to both insurance policy wording and customer communications. Ensuring a personalized, considered approach to every customer interaction is key, particularly in an era where more customers are deemed to be vulnerable. This isn’t just because it’s what the FCA stipulates must be done, but it’s for the good of the insurance industry as a whole.

Insurance firms have a duty of care to their customers, never more so than during a crisis like the coronavirus pandemic. There’s also the issue of building and nurturing long-term customer relationships, something that’s almost impossible to do when there are major court cases pending which call into question how a business has treated its customers. The potential damage to reputation if insurance firms are found lacking when it comes to treating customers fairly can be insurmountable and far more costly than any insurance pay-outs that might have to be made.

As the Supreme Court judgement highlights, there’s no better time to review policy wording and all customer communications and interactions. This will ensure clarity and simplicity wherever possible, underpinning valuable customer experience excellence at every step of the way.

Contact us for more information on how Aptean can help manage your customer relationships.