Insurers taken to court as coronavirus stricken businesses could be missing out on up to £900million
INSURANCE firms are being taken to court to decide whether thousands of businesses have been wrongly declined payouts for disruption due to coronavirus.
The Association of British Insurers (ABI) estimates that insurance payouts to firms with cover for Covid-19 could be worth at least £900million.
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The spread of coronavirus has seen scores of companies close their doors and furlough staff across the UK, with Chancellor Rishi Sunak coming under increased pressure to help small businesses.
The Financial Conduct Authority (FCA) is now seeking clarity on whether these struggling businesses should be entitled to make a claim on their insurance policies for the disruption.
The watchdog will take several complaints to court to help it set out the framework for how insurance companies should respond to claims going forward.
The FCA is writing to several firms to ask why they've been declining business insurance claims.
They’ll have until May 15, 2020, to reply to the FCA - the watchdog will then decide who it takes to court based on the responses it receives.
What help is there for businesses?
THE government has introduced a raft of measures to help businesses both big and small during the coronavirus crisis.
- The government has offered to furlough workers through its Coronavirus Job Retention Scheme, paying up to 80 per cent of wages up to £2,500 a month
- While self-employed workers can get up to 80 per cent of profits paid by the government for the next three months - again up to £2,500 a month
- Under the Coronavirus Business Interruption Loan Scheme, SMEs can get loans and overdrafts of up to £5 million for up to six years and the government with guarantee up to 80 per of these loans
- Small firms can get grants of up to £10,000 to help with ongoing business costs
- It has also announced VAT payments and self-assessment tax returns are deferred for three months
- SMEs that cannot afford their tax bills can ask HMRC for a “time to pay” arrangement so any debt collection is suspended
- And they can get up to two weeks’ sick pay - almost £200 per employee up to 250 staff members - refunded by the government.
- A 12-month business rates holiday has been introduced for many businesses
- Community businesses can now apply for grants of up to £25,000 from a new £12million pot of cash set up by Power to Change.
The FCA says the cases it chooses to bring to court will highlight “key issues” that have been causing confusion for customers, in terms of their eligibility to make a claim.
The firms will be taken to court on an “agreed basis” which means businesses could decline to show.
The FCA told The Sun it won't be naming the companies it is writing to.
The new guidance comes as new research from insolvency firm Begbies Traynor Group claims half a million UK businesses are on the verge of collapse.
It's also estimated that just two per cent of small businesses have received coronavirus loans.
Businesses who want to make an individual complaint about their insurance firm are still free to contact courts separately, or make a complaint to the free Financial Ombudsman Service.
Christopher Woolard, interim chief executive of the FCA, said: “Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers.
“It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”
Huw Evans, director general of ABI said: "This is a welcome step from the FCA and insurers will look to work closely with the regulator to make this process a success.
"Although the vast majority of business interruption policies do not cover pandemics... we support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered. "
Simon Sloane, a partner at European law firm Fieldfisher, added: "This belated action should be cautiously welcomed by UK businesses.
"It is critical for the credibility of both the FCA and the insurance industry that all appropriate legal issues are included in any test actions and that this does not merely become a tool for insurers to deny further claims."
We've asked the FCA what happens if firms are found to have wrongfully declined insurance claims in court and we'll update this article when we know more.
Insurers told to refund premiums and pause repayments
Meanwhile, the FCA is also asking insurers to consider refunding premiums and pausing payments for customers who've been financially hit by coronavirus.
For example, the watchdog guidance suggests customers should be entitled to money back if the insurer is unable to fulfil part of a claim because of lockdown restrictions, or part of the policy is no longer relevant due to an event being cancelled.
This guidance includes all insurers, not just business insurance firms.
If confirmed, the measures would come into force by the end of May and will be reviewed in three months.
The FCA proposes to give insurers up to six months to assess whether their policy still offers value for money.
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The Sun has already rounded up how you can get a refund on your car insurance, while Admiral has announced plans to give 4.4million customers a £25 refund.
James Blackham, chief executive of pay-by-mile car insurance provider By Miles, said: "If you’re driving less, you should pay less, and the FCA today said that motorists could potentially be offered a material refund on their car insurance.
"Fewer cars on the roads means less chance of an accident and far fewer claims."
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