The FCA has promised to show more teeth: where might the bite marks be?
Earlier this year, the FCA, published substantial changes to its approach to regulation. One of the most significant was an intention to be: “more assertive – testing the limits of our own powers and engaging with partners to make sure they bring their powers to bear”.
Put bluntly, the FCA intends to show more teeth in the future when harm and misconduct is identified (including within the insurance market) and will “continue with a targeted litigation strategy to provide legal clarity and to protect consumers”.
We have had a taste of the FCA’s show of arms over the past 18 months in its business interruption test case litigation, brought to clarify the operation of certain policies in response to COVID-19 losses.
What seems clear from the FCA’s business plan is that this type of regulatory intervention, and the use of the Courts, was not a one-hit-wonder. The insurance market can expect the FCA to intervene where necessary in the future, for example, when claims issues arise that affect a substantial number of policyholders and insurers, or where the market is not operating as it should be.
Where, then, might the FCA sink its teeth?
BI Insurance: The Saga Continues
Though the FCA’s BI test case delivered clarity under some policies, certain important issues affecting others continue to cause difficulty:
“At the premises” wordings
Large numbers of business interruption policies respond to the presence of a notifiable disease (such as, COVID-19) “at the premises” (at a restaurant, for example). Those wordings were not considered in the original BI test case.
However, the FCA’s guidance of 16 August 2021 says: “…where the policy contains a disease clause responding to COVID-19 ‘at the premises’ and does not also include cover for COVID-19 occurring within a radius of the premises, a policyholder will need to prove (as a minimum) that COVID-19 occurred at their premises at the relevant point in time to have a potentially valid claim”.
This sets the evidential bar high for policyholders (particularly given the lack of reliable evidence of COVID cases at the outset of the pandemic). However, the FCA indicates that, should a policyholder be able to identify a case of COVID at their premises prior to the imposition of Government restrictions, a valid claim could exist.
Today, these types of claims are routinely declined by insurers. Even if, one insurer suggests, a case of COVID “at the premises” can be found, claims under such wordings will still fail because the insurer suggests the business would have still been interrupted by the Government’s restrictions, even had that individual case not occurred.
That argument was dismissed by the Supreme Court in the BI Test Case. Whilst “at the premises” insuring clauses were not considered in the test case (and their correct interpretation remains unresolved), the Supreme Court’s findings on the question of causation can be argued to apply equally to such wordings. Were that so, a case of COVID “at the premises” would be considered a concurrent cause of a policyholder’s loss, together with other cases “not at the premises”. Absent an exclusion for the latter, a policyholder would be entitled to recover, subject to the policy’s other terms..
The FCA may leave it up to individual policyholders to pick this battle. However, given the prevalence of the issue throughout the market, it may be that the FCA can step in once again.
“In the vicinity” wordings
Many business interruption policies trigger upon the presence of a “danger” or “disturbance” (or something similar) “within the vicinity” of an insured premises. The High Court held in the FCA test case that “vicinity” indicated an intention by insurers to provide narrow, localised, business interruption cover (such as for gas leaks and the like). This finding was not appealed to the Supreme Court, but sits uncomfortably with those representing policyholders in light of later findings by the Supreme Court. Those findings indicated that, had the meaning of “vicinity” been put to the Supreme Court, it might have reached a different conclusion to the Divisional Court and found in favour of policyholders.
On 10 September 2021, support was leant to this discomfort. Lord Mance (a former Deputy President of the Supreme Court), sitting as arbitrator in a dispute between 183 policyholders and China Taiping Insurance, said of the vicinity question: “I…doubt whether the Divisional Court could or would have approached the matter as it did…had it had the benefit of the Supreme Court’s analysis”.
Again, this issue affects a great many policyholders, many of whom have now had their claims declined with no financial means of bringing about a fresh challenge on the point.
If the FCA and its legal team were to revisit this particular point, it would provide market-wide clarity on the issue.
Motor Insurance
There are other areas where the FCA may wish to flex its muscles in the future.
In motor insurance, insurers will rightly say that consumer policyholders have a duty to take reasonable care not to make a misrepresentation when buying their motor insurance. That includes disclosing points on your licence.
However, many of those same insurers gather driving licence details from policyholders at the time their policies are sold. And through one particular sales channel, the following guidance is provided to consumers:
“When you look for car insurance quotes…a service known as MyLicence, developed by the DVLA and MIB, lets insurers use your licence number to see your driving records and information automatically.
This means they can provide a more accurate car insurance quote based on your record – rather than having to input all the information yourself, risking making a mistake and invalidating your policy.” (my emphasis).
What, then, is the position of a consumer who uses this sales channel, provides their driving licence, and assumes that the insurer has checked their licence and is satisfied with what they found?
In at least one case we have seen via this channel, the insurer did not check the licence (despite it being suggested they might when the policy was sold to them), discovered undisclosed points post-loss, declined the claim and avoided the consumer’s policy. Of more concern, however, is that a Financial Ombudsman Service investigator concluded that the relevant insurer had done nothing wrong, despite the above guidance
One can only hope, in that case, that the Ombudsman puts things right, but we must ask – how many other consumers rely on the insurer to check their licence history when faced with the above guidance? Are they unknowingly uninsured?
It's an obvious area in which the regulator could bring greater clarity, and avoid harm to consumers, by intervening.
Conclusion
Like any industry, some parts of the market operate more fairly than others. Even where the market is already operating fairly, recent events surrounding BI insurance damaged the important relationship of trust between some customers and their insurers. The ABI, rightly, recognises that this trust needs to be rebuilt.
Much of that work will be done by insurers themselves. Fairer pricing; clearer product language; and more transparent marketing materials are all areas of focus for the market.
However, to the extent that opportunities for improvement remain, that the FCA is willing to take action (and litigate, where necessary) to right wrongs in the market should be welcomed by all.
Whichever side of the market you are on, we are all here, ultimately, to serve the policyholder - there is no reason, particularly in these difficult times, we shouldn’t all strive to be even better at that (even if a bite from the FCA is required along the way).
James Morris
Indemnity Legal
23 November 2021