CII calls for action to steer clear of future FCA test cases

In May, the FCA said it intended to obtain a court declaration - or test case - to resolve contractual uncertainty in business interruption (BI) insurance cover. It believed the circumstances of the current coronavirus crisis, and its effect on businesses holding BI policies, meant that any uncertainty needed to be resolved as quickly as possible.

Then, in an update published on the regulator's website in July, the FCA said it had approached 56 insurers, and reviewed over 500 relevant policies from 40 insurers. The regulator then said it had identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute.

The update also gave further detail on the proposed court action, including identifying the representative sample of policy wordings to be examined in the test case, the insurers that use those wordings, and which of those insurers will participate in the proceedings.

Rather than rely on test cases, however, the CII has urged the sector to focus on three areas of activity.

Firstly, product governance processes, including gaining greater clarity on product wordings. The professional body said that where the same words and phrases are used in different contracts, there should be a consensus among professionals about what those terms mean. 

Secondly, the sector should look at improving advice processes to help clients understand both the insurable and non-insurable risks they face and what they can do about them.

Finally, it said they should establish an approach to pandemics and other systematic risks that set out the scope of government intervention. If the government clarifies the risks it is prepared to cover, the institute added, the market can therefore be clear on how it will cover those risks.

CII CEO Sian Fisher (pictured) said: "As the professional body for insurance, our key concern is to build trust in the profession. For this reason, we welcomed the test case when it was launched, as it will create greater certainly around the legal basis of business interruption contracts."

Though the test case decision will bring greater clarity on BI insurance cover, the CEO continued, the decision could be subject to appeal.

"BI insurance is a crucial product for many SMEs. It provides for a wide range of risks that could threaten the survival of a business, including fire and flood. Looking to the future, insurers, brokers and government must act now to reduce the need for court cases such as this one in future," she added. 

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