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Businesses on brink

FCA ‘must apply pressure on insurance firms’

Alison Thewliss

Plea: Alison Thewliss (pic: Terry Murden)

The Financial Conduct Authority (FCA) needs to take action with insurance companies refusing to cover valid business claims, says the SNP.

The FCA has previously written to firms urging them to pay out, where appropriate, in the wake of the COVID-19 crisis.

Its letter said: “Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics, and therefore would have no obligation to pay out under the COVID-19 pandemic.

“While this may be disappointing for the policyholder, we see no reasonable grounds to intervene in such circumstances.

“In contrast, there are policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.”

However, many businesses are still warning that insurance companies are not honouring their policies – which are inclusive of pandemic cover – and are threatening their futures.

In a letter to the FCA, the SNP’s shadow chancellor Alison Thewliss insists quick action is required to save many businesses from going to the wall.

The MP for Glasgow Central, said: “The coronavirus crisis has had a devastating impact on small and medium businesses, with many of them having to close their doors and furlough thousands of staff.

“This has been exacerbated by insurance companies determining that claims cannot be made on certain Business Interruption (BI) policies.

“I have heard from a number of businesses that despite having BI policies – in some cases covering pandemics, infectious diseases, and closures instructed by public authorities – insurers are refusing to honour claims for associated losses.

There is real worry that by the time insurers respond to the FCA, detailing the reasons for rejecting any claims, it will be too late for some businesses

– Alison Thewliss, SNP

“Meanwhile, UKHospitality has informed the Treasury Select Committee that a staggering 71% of insurance claims made by their members have been rejected, with only 1% successful. That is extremely concerning and will undoubtedly push affected firms to the brink.

“While I welcome the action already taken by the FCA, it’s clear that time is of the essence. There is real worry that by the time insurers respond to the FCA, detailing the reasons for rejecting any claims, it will be too late for some businesses who will have already collapsed.

“Businesses have taken the prudent and practical step of taking out insurance policies to protect against unforeseen events and they believed they were fully covered.

“In these challenging times, small companies are telling me that they feel abandoned, and that without urgent support they will not survive. Referring complaints to the Financial Ombudsman Service will only add further delay.

“I urge the FCA to outline what further pressure it can bring to bear on insurance companies and brokers so that firms adhere to policies, and claims can be lodged and settled as quickly and diligently as possible.”

The SNP’s pressure comes as Hiscox Action Group, set up by policy holders to ensure that Hiscox Insurance honours its Business Interruption insurance, has announced it has retained top city law firm, Mishcon de Reya, to handle its claim. 

The Action Group has also revealed that it is in advanced discussions with a major litigation funder to underwrite the entire legal action.

Responding to the SNP’s calls, a spokesman for the Association of British Insurers said: “Insurers understand that this is a very worrying and uncertain time for all businesses. Each claim will be examined on its merits by the insurer according to all the policy wording and we can’t comment on any specific insurance contract.

“While most business insurance does not cover for pandemics, overall UK insurers expect to pay over £1bn in COVID-19 related claims. This includes travellers, some businesses, cancelled school trips, event organisers, families organising weddings and in other areas of life.

“The industry also pays out day in, day out to help customers manage the everyday problems they face. Businesses are typically protected against day to day risks such as damage to premises, motor accidents, supplier failure and employee harm. Last year, in the UK alone, these types of everyday claims from businesses amounted to £7.8bn.

“Unfortunately, no country in the world has an insurance market that is able to offer widespread pandemic cover. Forcing insurance companies to pay for risks that aren’t covered in contracts would be a shortcut to their insolvency.

“Given the sheer scale of economic impact, extensive pandemic insurance cover can only happen with some form of government support, and we need a debate about how this can best be achieved in the future.”

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