Coronavirus: Juggling legal and conduct risks in general insurance

On 19 March 2020 the FCA set out its expectations for insurers on how they should respond to some of the challenges caused by this coronavirus (COVID-19) pandemic. The conduct regulator also provides information for consumers about what they should expect from their insurance providers.

Many consumers are currently vulnerable because of COVID-19 and the FCA reminds insurers of their responsibility to treat customers fairly. While most of the FCA’s guidance is aimed at insurers, brokers have a key role to play in helping customers to buy products that continue to meet their specific needs. The FCA also provides guidance to consumers, urging them to read their policy documentation to understand coverage and to speak to their providers, as well as giving some reassurance regarding travel insurance.

What the FCA expects from firms due to COVID-19

To manage and mitigate the operational impact of COVID-19, firms should designate a Senior Manager to be responsible for business continuity, and to ensure that critical business services (e.g. claims handling) can continue to be delivered.

The FCA urges insurers to show as much flexibility as possible when dealing with customers to ensure continuity of cover for policyholders and to honour valid claims. For example, as more and more people use their homes as their primary place of work, home content insurers are advised not to reject claims which might be in conflict with conditions of cover for home insurance policies. Similarly, if travel insurance claims arise after the renewal date, the FCA expects insurers to take individual circumstances into account and, where appropriate, renew or consider claims under the terms of the original policy.

There have been media reports that some insurers have paused the sale of certain products since the advent of the pandemic. FCA sets clear expectations that before suspending the sale of existing products, firms must consider the needs of their customers carefully, taking into account any vulnerabilities, otherwise firms may not be deemed to be treating their customers fairly. Where policies are coming up for renewal, if firms decide to change any terms and conditions or introduce any new exclusions, then the FCA expects them to clearly communicate this to consumers.

Where insurers are contemplating mid-term adjustments to existing policies, the FCA urges firms to consider carefully whether the contract, consumer rights legislation and FCA rules allow for such changes and that they are considering the interests of their customers.

What do firms need to do?

Insurers should review their contractual terms carefully, taking legal advice where appropriate. Having clarified the legal position, they should then consider whether any decisions they make regarding coverage, claims, adjustments and communications, take into account the interests of their customers.

Legally the FCA cannot prevent firms from rejecting claims that fall outside the terms and conditions of an insurance policy or prevent firms from removing or amending products from the market for new customers, as these are business decisions for individual insurers. But the purpose of the FCA’s guidance is to create a shift in the mind-set, from firms prioritising their own commercial interests to considering the vulnerabilities of consumers and ensuring that they are treated fairly during these challenging times.

Hannah  Swain

Hannah Swain | Director, PwC United Kingdom
Profile | Email | +44 (0)7803 590553

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