Insurers liable for claims to cover business interruption due to coronavirus must pay out “as soon as is possible” to help small businesses survive the lockdown, the City watchdog has warned.
In a letter to insurance bosses, the Financial Conduct Authority (FCA) said it wants firms to also make interim payouts in cases where a claim in full may not immediately be possible, or explain to the regulator why this has not been done.
The FCA said it believes most firms only have basic insurance policies which do not cover pandemics and will therefore not pay out.
But it said there are cases where it is clear insurers are liable to pay out and must do so swiftly.
It comes as a raft of insurance firms are facing legal action after declining payouts for business interruption claims, despite stating that they would cover firms forced to shut due to a notifiable disease.
FCA interim chief executive Christopher Woolard said: “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.
“A key objective of the FCA is to ensure that financial pressures on policyholders are not exacerbated by slow payment; rather, such claims should be paid as soon as is possible.”
While the FCA does not point the finger at any particular firms, Hiscox is one of the insurers that has come under fire from small business owners who allege it has turned down claims unfairly.
The Hiscox Action Group was set up by a group of small firms and is looking at whether or not they have a case to take legal action against the group.
Mark Killick, of Media Zoo and a Hiscox Action Group founder member, welcomed the FCA’s action, saying it was “great news that the FCA has finally got involved”.
The group said it will be writing to the FCA calling for it to investigate Hiscox.
Mr Woolard said small firms – with an annual turnover of less than £6.5 million and either fewer than 50 employees or a balance sheet total below £5 million – can turn to the Financial Ombudsman Service in cases of dispute as a quicker alternative to legal action through the courts.
The FCA has set up a new unit to co-ordinate its activities across small business issues, looking to support firms and gather intelligence about how they are treated by financial services firms during the crisis.
The Association of British Insurers insisted its members were “committed to swift payment of valid claims and interim payments to their customers”.
In a stock market update, Hiscox said around 10% of its UK small business policyholders have business interruption cover, of which about 10,000 have been impacted by the lockdown.
But the group stressed its core policy wordings do not provide cover for business interruption as a result of the general measures taken by the UK Government in response to a pandemic, though it said it reviews “every case individually”.