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Months on from BI ruling, major insurers have paid zero claims

29th March 2021 - Author: Matt Sheehan

Data from the Financial Conduct Authority (FCA) shows that months on from the UK’s legal ruling on business interruption (BI) claims connected to the pandemic, many major insurers have paid out on only a fraction of claims, with some reporting no payments at all.

Last week, the UK regulator reported that around £472 million has been paid out so far for claims related to the BI test case, which it first brought forward in May 2020.

According to data submitted by re/insurers, almost half of the 21,140 policyholders whose claims had been accepted had recieved at least an interim payment, with most data valid for around the end of February or early March 2021.

But some insurers, such as MS Amlin, had not yet accepted or paid out on a single claim related to the BI case as of February 22nd, despite having almost 4,000 claims “pending” between its MS Amlin Insurance SE and MS Amlin Underwriting Limited businesses.

Hiscox had likewise only approved 242 claims as of March 3rd despite having 4,239 claims pending, with initial payments made on 116 claims and full pay-outs made on only 24 claims, the FCA figures show.

The UK Supreme Court upheld the legal verdict on BI policies on January 15th, quashing insurers’ appeals to the High Court’s original judgement from September 2020, which ruled in favour of policyholders on a majority of key issues in the FCA’s test case.

At the time of the September ruling, the FCA’s then Interim-CEO Christopher Woolard set out a series of expectations for insurers, which included taking all reasonable steps to ensure claims were ready to be paid and settled at the earliest possible opportunity after any relevant appeals.

But now, more than six months on from the original ruling and two months on from the conclusion of appeals, many of the UK’s largest insurers are yet to make any payments on policies they are legally required to honour.

With policyholders having endured a full year of disruption due to lockdown restrictions, this delay will likely be fatal for many desperate businesses, and countless others have already been forced to close over the course of the pandemic.

Many commentators have also expressed concerns that the re/insurance industry’s attitude to the crisis and its sluggish response to meet contractual obligations could cause irreparable damage to its reputation in the long run.

Willis Towers Watson (WTW) said as early as May last year that the pandemic would be a “reputational moment” for the industry, a point that was reflected in Hiscox’s admission that “brand damage” had been a factor in its $268.5 million loss for 2020.

Similarly, Aviva CEO Amanda Blanc has acknowledged it will take “some time” to rebuild trust in the industry, while Markel Co-CEO Richie Whitt has warned that “most people are going to remember the losses we don’t believe we should have to pay,” rather than the many billions that will be paid out on COVID claims.

Hiscox in particular has been the target of public ire via the Hiscox Action Group, a collection of almost 400 businesses that has taken legal action against the insurer, represented by law firm Mishcon de Reya.

The insurer’s standing will not be aided by the recent FCA data, which shows that, on average, only about three claims per day were paid in the seven weeks following the Supreme Court ruling.

Although some of these claims are reportedly worth up to £100,000, Hiscox Action Group leader Mark Killick told the BBC that in at least 24 cases Hiscox had agreed the claim was covered but decided the value of the claim was £0.

It’s worth noting that most of the insurers that have submitted data to the FCA are some way into the process of settling their BI claims following the court ruling, but critics might say it is telling that some of the largest insurers with the most resources at their disposal are lagging well behind their peers.

For instance, in addition to MS Amlin and Hiscox, Canopius had offered no payments on its 1,333 accepted claims as of February 23rd, while HDI’s data likewise showed zero payments on some 600 claims between its businesses.

Meanwhile, QIC had paid out on just three of nearly 700 claims that were either pending or accepted at February 18th, and QBE and RSA had each made around 100 full payments on more than 2,000 pending or accepted claims as of March 1st.

It appears that a number of large insurers did not provide any information to the FCA for this data call, which will do little to allay the regulator’s concerns about lack of transparency when it comes to claims interactions.

In its defence, Hiscox argued that these “are complicated claims that require comprehensive financial information and discussions with customers in order to settle them fairly.”

But insurers will have been sitting on a large number of the claims in question for many months now while the legal dispute has played out, which suggests this explanation will garner little sympathy from policyholders, or from the wider public.

It’s also worth putting the FCA’s headline figures of £472 million paid on 10,207 policies in context with earlier estimates surrounding the BI test case, which calculated that the ruling would affect 370,000 small businesses and between £3.7 million and £7.4 billion of claims.

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