Following the conclusion of the test case trial on 30 July, we are currently awaiting the High Court judgment on the test case to resolve uncertainty about insurers’ liability for certain Business Interruption (BI) insurance policies. The test case does not directly address how any resulting claims payments will be calculated.
In recent weeks, policyholder complaints, stakeholders and media reports have made us increasingly aware of policyholder concerns about how insurers are calculating non-damage BI claim payments where they have agreed to liability. In particular, some insurers are making deductions for some types of Government support those policyholders have received over the past few months.
Where insurers have accepted liability, they should continue to handle and assess non-damage BI claims promptly and fairly, and to treat their customers fairly in accordance with Principle 6.
Assessing the appropriateness of making deductions
The insurer will need to assess this for some or all of each type of government support received by the policyholder with a case by case assessment. The assessment should consider:
- the exact type and nature of the Government support
- how the policyholder used this support
- the type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy
Some of these factors will be case and claim specific. Even where it is appropriate in principle to deduct these amounts, a single, uniform approach to deductions is still unlikely to be appropriate. Insurers are likely to need to consider individually the precise details of the policy, the claim and the use and application of the government support the policyholder received. How Government support is treated for tax purposes may differ from the way it is treated for calculating the loss under a BI policy.
We expect firms to take these matters into account when they calculate non-damage BI claims. We also expect them to reflect these matters appropriately in their communications with policyholders when making settlement offers and reaching a settlement on relevant BI claims. We will consider how firms treat their policyholders in this way as part of our usual supervisory activities. We may intervene and take further actions where firms do not appear to be meeting our expectations and treating their customers fairly on these points