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#FCA Unveils Measures To #Help #Car #Insurance Policyholders, Seeks Input On #Business Interruption Disputes

By 18th May 2020 No Comments

The UK financial regulator, the Financial Conduct Authority, has confirmed a series of temporary measures which will come into effect from today (Monday 18 May) to help insurance policyholders in financial difficulty because of coronavirus (COVID-19).

The measures include requiring firms to:

  • Reassess the risk profile of customers. The FCA says the level of risk presented by a policyholder may have changed because of coronavirus and there may thus be scope to offer them materially lower premiums.
  • Consider whether there are other products they can offer which would better meet the customer’s needs and revise the cover accordingly. The regulator cites the example of a car insurance policyholder who might no longer need an add-on such as key cover or who could be moved from fully comprehensive to third party fire and theft cover.
  • Waive cancellation and other fees associated with adjusting policies.

The FCA says customers paying by instalments could see a reduction in their monthly premium as a result of these measures, while customers who have paid up front could receive a partial refund of their premium.

Insurers under fire

UK car insurance companies have been widely criticised for refusing to rebate premiums to customers who are not driving or who are driving fewer miles as a result of the pandemic lockdown.

Insurers in North America, Europe and elsewhere have offered blanket premium refunds, but in the UK only Admiral and LV have followed suit. Other UK firms have offered to amend policies to reflect lower mileage without levying fees.

Last month, a group of MPs wrote to the Chancellor, Rishi Sunak, demanding action on premium refunds, but the government has taken no action.

Freddy Macnamara, founder of Cuvva, which offers flexible insurance products, has been one of the most vocal critics of the insurance industry, suggesting profits from car insurance are subsidising losses elsewhere.

He said: “Car insurance customers shouldn’t have to bear the burden of losses that insurers may experience in other facets of the business as a result of the pandemic, such as travel.”

Car insurance companies have reported a reduction in the number claims during the lockdown because less traffic on the roads means fewer accidents. One of the UK’s largest insurers, Direct Line, reported a 70% decrease in April.

Macnamara said: “With a drop in claims of this magnitude, car insurers could profit by as much as £1 billion from the pandemic, which should automatically be returned to customers.”

Payment deferral on instalments

In addition to the measures taking effect on Monday, the FCA is telling firms to offer payment deferrals to customers paying by instalment if amendments to their cover do not alleviate temporary payment difficulties.

Deferrals should last between one and three months, though the FCA says firms can go beyond three months if it is in a customer’s interests.

It says customers should be able to request a payment deferral at any point up to 18 August 2020.

Other options to help customers mooted by the FCA include firms:

  • accepting reduced repayments, or rescheduling the policy term
  • waiving missed or late payment fees
  • permitting a customer to amend their repayment date without cost.

Firms are also being told to review the interest charged on instalment payments to see whether these are fair.

Paying by instalment can often add 20% or more to the cost of an annual car or home insurance policy. The Bank of England base rate is 0.1%.

The FCA measures will be reviewed over the next three months as the coronavirus crisis unfolds and may be revised.

Business interruption court case

The FCA is inviting businesses to provide details of unresolved business interruption claims made as a result of losses caused by the coronavirus lockdown.

The deadline for submissions via email is Wednesday 20 May.

Some businesses are angry that their claims have been turned down, but insurers argue that most commercial insurance policies do not include cover for the consequences of a pandemic.

The FCA is asking the courts to resolve uncertainty in the area, and will use information gathered from policyholders alongside contributions from insurers. The court case is expected in July 2020.

The FCA said: “The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the representative sample considered.

“It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.”

The regulator is also consulting separately on whether it should intervene further in the insurance market to ensure firms are providing value to their customers during the pandemic.


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This article is written by @Kevin Pratt.

Tim Kelly

Tim Kelly

Tim is a highly qualified Independent Engineer with over 20 years experience as an Engineering Assessor of damaged vehicles.