FCA releases guidance for GI insurer behaviour during coronavirus crisis

Independent regulatory body the FCA has today published its expectations of general insurance firms’ behaviour during the coronavirus outbreak, flagging concerns around travel insurance, home insurance and renewals.

Although the FCA guidance centres around insurer actions, the regulator also highlighted the important role that brokers can play.

It said: “In these uncertain times, brokers have a key role to play to help consumers understand the market, the impact of coronavirus, and search the market for products that meet their demands and needs.

“We encourage brokers to keep abreast of market developments so they can suitably advise their customers.”

Operational resilience

A key concern for the FCA lies around operational resilience and business continuity.

With this in mind, the regulator has outlined four key focuses for insurance firms. These are:

• To have sufficiently robust systems and controls to continue to operate effectively in a stressed situation with business continuity plans to manage this.
• To have a senior manager responsible for business continuity and for managing the impact of coronavirus.
• To act fairly, honestly and professionally in accordance with the best interests of customers.
• Ensure that all customer communications are clear, fair and not misleading.

Alongside this, the FCA asked general insurance organisations to understand the impact of potential staff absences and wellbeing measures on business continuity, for example being unable to use organisational premises.

“Where firms identify gaps through their planning that will, or could, cause harm to customers, they should notify the FCA through their usual supervisory contact,” it added.

Travel insurance

The FCA emphasis around travel insurance is on treating customers fairly during this tricky time, throughout the entire cycle of purchase, claim and renewal.

For existing customers who are impacted by the current situation, for example those who booked travel before the outbreak, insurers are expected to clearly communicate any policy exclusions that result from Covid-19.

The FCA stated: “There will be some instances where a consumer bought annual travel insurance to cover the risk of cancellation or curtailment and are relying on a policy renewal to cover travel arrangements made before the coronavirus situation escalated.

“In these circumstances, the terms of the current policy may allow for a pay-out when the event causing the cancellation or curtailment occurs.

“If the claim arises after the renewal date, we expect insurers to treat customers fairly, taking individual circumstances into account. This includes where the policyholder was given a reasonable expectation that cover would continue.

“Where appropriate, renew or consider claims under the terms of the original policy for these travel arrangements.”

A further issue here is product suspension: firms such as LV=, Aviva and Direct Line, for example, have suspending selling travel insurance to new customers.

To manage this, the FCA said:

• Firms must consider the needs of their customers carefully, in particular where the customer is relying on a renewal for continuity of cover (taking into account any vulnerabilities). In such circumstances, it may not be treating customers fairly if a firm were to not renew (even though the product would otherwise be suspended).
• Consumers who are due to renew their policy should have the policy coverage and exclusions clearly explained to them in all circumstances. Any exceptional cases of policyholder need should be considered by the insurer and all changes need to be clearly communicated.
• Alternative products are not sold to consumers that do not meet their demands and needs, and not in their best interest.

Renewals

For firms looking to change existing policies at renewal, the FCA is asking that insurers consider the existing requirements for product design.

If organisations are amending their policies to exclude coronavirus, then this has to be made very clear to consumers, with the information displayed in a prominent position. Any policy changes or exclusions have to be communicated to customers before renewal, as well as advertised to potential customers.

Any changes should still comply with FCA rules around fairness and should be considered appropriate for consumers.

Home insurance

The FCA further asked insurers to be accommodating around home, motor and contents insurance as increasingly numbers of employees begin to work from home in order to halt the spread of coronavirus.

The regulator said: “Many consumers may use their home to as their main work location during the current situation and keep some work-related assets at their home address. Consumers may be concerned that this conflicts with the cover under their current policy.

“We expect motor and home insurers not to reject claims because of a consumer’s understandable temporary change in how they use their vehicle and their home address, in response to government advice and the emerging coronavirus situation.”

Mid-term adjustments

The regulator also recognised that some insurers will be looking to make mid-term adjustments to existing policies. In these circumstances, the FCA expects firm to consider:

• Whether there is a written term in the contract that states they are able to make the change that they want to make.
• Are the terms that they intend to rely upon fair and transparent under the Consumer Rights Act 2015 (or the Unfair Terms in Consumer Contracts Regulations 1999 if appropriate)?
• Whether they are applying the term properly, in accordance with the contract (for example, by complying with any notice period set out in the contract).
• Whether due regard has been given to the interests of their customers and treating customers fairly (per FCA Principle 6). Also, to the information needs of their customers and communicating information in a way that is clear, fair and not misleading (per FCA Principle 7).
• Whether there is any other reason in law or any other relevant FCA rules, and whether they are complying with them.

Christopher Woolard, interim chief executive of the FCA said: “We have already seen some firms make significant efforts in difficult operating conditions. We expect all firms to be clear and not misleading whenever they communicate and be fair and professional in how they deal with their customers.

“Customer behaviour is changing. We expect insurance firms to recognise this and treat their customers fairly, recognising the circumstances customers may find themselves in. We would not expect to see a customer’s ability to claim affected by circumstances over which they have little control.

“Any customer concerned about their insurance should consider contacting their provider with any questions they may have.”

Matt Connell, director of policy and engagement for the Chartered Insurance Institute (CII), added; “Where insurers have made a contractual commitment to cover a risk, they must clearly honour that commitment.

“The overall economic impact of Covid-19 is huge, and it can only be mitigated by an organisation with the tax raising powers of a government.

“It is not in anyone’s interests to try to reinterpret insurance contracts in the light of recent events in order to make insurers the mechanism for a Covid-19 bail out. It would simply place responsibility on insurers that no private sector organisation could sustain.

“Insurers should be allowed to set the levels of risk and cover that are consistent with their risk appetite. However, we wholeheartedly agree with the FCA that these changes must be communicated effectively.

“These communications can only be clear if any changes in cover are done in a way that is consistent with the basic design and purpose of the product, and with the basic purpose of the insurance firm.”