COVID-19: FCA statement on non-damage BI settlements and deductions relating to government support | Practical Law

COVID-19: FCA statement on non-damage BI settlements and deductions relating to government support | Practical Law

The FCA has published a statement on non-damage business insurance (BI) settlements and deductions in relation to government support. Where insurers have agreed liability, some are making deductions for certain types of government support that policyholders have received over the past few months.

COVID-19: FCA statement on non-damage BI settlements and deductions relating to government support

by Practical Law Financial Services
Published on 03 Aug 2020 • United Kingdom
The FCA has published a statement on non-damage business insurance (BI) settlements and deductions in relation to government support. Where insurers have agreed liability, some are making deductions for certain types of government support that policyholders have received over the past few months.
On 3 August 2020, the FCA published a statement on non-damage business insurance (BI) settlements and deductions in relation to government support.
Following the BI test case trial concluding on 30 July 2020, the FCA is waiting for the High Court judgment to resolve uncertainty about insurers' liability for certain BI insurance policies (see Legal update, COVID-19: FCA updates webpage on business interruption insurance test case: 31 July 2020).
The FCA is increasingly aware of policyholder concerns about how insurers are calculating non-damage BI claim payments where they have agreed liability. In particular, some insurers are making deductions for some types of government support that policyholders have received over the past few months.
Where insurers have accepted liability, they should continue to handle and assess non-damage BI claims promptly and fairly, and to treat their customers fairly. The insurer will need to assess the appropriateness of making deductions for some or all of each type of government support received by the policyholder with a case by case assessment. The assessment should consider:
  • The exact type and nature of the government support.
  • How the policyholder used this support.
  • The type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy.
Some of the factors will be case and claim specific. Even where it is appropriate in principle to deduct amounts, a single, uniform approach to deductions is unlikely to be appropriate. Insurers are likely to need to consider individually the precise details of the policy, the claim and the use and application of the government support the policyholder received. How government support is treated for tax purposes may differ from the way it is treated for calculating the loss under a BI policy.
The FCA expects firms to take these matters into account when they calculate non-damage BI claims. It also expects them to reflect these matters appropriately in their communications with policyholders when making settlement offers and reaching settlement on relevant BI claims.
If necessary, the FCA may intervene and take further actions where firms do not appear to be meeting its expectations and treating their customers fairly on these points.
For more information on the test case, see Practice note, COVID-19: FCA business interruption insurance test case.