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COVID-19: Regulatory response to business interruption insurance

15 May 2020
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The Prudential Authority and the Financial Sector Conduct Authority (jointly referred to as the Authorities), have published Joint Communication 5 of 2020 (Communication 5).

Communication 5 outlines the Authorities’ position on certain aspects of business interruption (BI) insurance as well as the Authorities’ expectations on non-life insurers and intermediaries as to how they should communicate with policyholders. This is in respect of BI claims related to COVID-19 to ensure that the processing of BI claims is not unduly delayed, and that terms and conditions of insurance coverage are not varied without taking a balanced approach to ensure fair outcomes.

Standard BI Insurance (physical damage trigger)
The large majority of BI policies relate to standard BI insurance where a policyholder should prove physical damage to the business premises covered under the policy. COVID-19 will not be covered in such a standard policy and the Authorities see no reasonable grounds to intervene since this is what a policyholder and insurer agreed upon when the insurance contract was concluded.

BI Insurance with extensions for infectious/ contagious diseases
There appears to be a small percentage of policies with BI cover in the industry that have specific extensions for infectious/ contagious diseases. The Authorities understand that insurers and reinsurers interpret such extensions to apply only where the loss of business income was due to the business being interrupted because of a localised COVID-19 infection and not as a result of other related actions such as lockdown introduced by Government.

The Authorities encourage clear and regular communication with policyholders (regardless of the type of BI policy) regarding the impact of COVID-19 on their coverage. Insurers must also ensure that they make decisions on BI claims within a reasonable period after receipt of the claims in line with the Treating Customers Fairly Principles

The publication of the FSCA Communication 12 of 2020 (General), required that if any new exclusions or requirements are introduced during the period of the COVID-19 pandemic crisis, such exclusions must be discussed with the FSCA. Insurers should inform customers, when renewing existing policies, if there are any contractual variations to the terms and conditions of these policies arising from COVID-19.

The Authorities are not considering initiatives to require insurers to retroactively cover COVID-19-related losses that are specifically excluded in existing insurance contracts.

A copy of Communication 5 can be accessed here.