FCA urges insurers to be flexible in wake of coronavirus

The Financial Conduct Authority has set out its expectations from insurers and brokers in the wake of the coronavirus pandemic. In particular it wants the industry to be flexible and understanding of how customer behaviour will change such as working from home or commuting by car rather than by public transport.

The watchdog said it expects firms to "clearly communicate any policy exclusions that may impact the cover and use of individual policies". This, it added, applies both to new sales or changes to existing policies (either mid-term or at renewal) – they must clearly meet consumers’ demands and needs.

For travel insurance, the FCA also focused on issues around customers who had been relying on renewed policies to cover travel booked before the outbreak. It said: “There will be some instances where a consumer bought annual travel insurance to cover the risk of cancellation or curtailment and are relying on a policy renewal to cover travel arrangements made before the coronavirus situation escalated. “In these circumstances, the terms of the current policy may allow for a pay-out when the event causing the cancellation or curtailment occurs.

“If the claim arises after the renewal date, we would expect insurers to treat customers fairly, taking individual circumstances into account. This includes where the policyholder was given a reasonable expectation that cover would continue. Where appropriate, renew or consider claims under the terms of the original policy for these travel arrangements.”

It also issued guidance on product suspensions and stated that firms must consider the needs of their customers carefully, in particular where the customer is relying on a renewal for continuity of cover, considering any vulnerabilities. “In such circumstances, it may not be treating customers fairly if a firm were to not renew, even though the product would otherwise be suspended.”

Brokers were also given a starring role in its guidance. The FCA highlighted the key role of brokers, who it said “have a key role to play to help consumers understand the market, the impact of coronavirus, and search the market for products that meet their demands and needs. We encourage brokers to keep abreast of market developments so they can suitably advise their customers.”

Christopher Woolard, interim chief executive of the FCA said: “Customer behaviour is changing. We expect insurance firms to recognise this and treat their customers fairly, recognising the circumstances customers may find themselves in. We would not expect to see a customer’s ability to claim affected by circumstances over which they have little control.”

Matt Connell, director of policy and engagement for the Chartered Insurance Institute pushed back on any suggestion that insurance contracts could be re-imagined. “It is not in anyone’s interests to try to reinterpret insurance contracts in the light of recent events in order to make insurers the mechanism for a COVID-19 bail out. It would simply place responsibility on insurers that no private sector organisation could sustain.

“As a result, insurers should be allowed to set the levels of risk and cover that are consistent with their risk appetite. However, we wholeheartedly agree with the FCA that these changes must be communicated effectively. These communications can only be clear if any changes in cover are done in a way that is consistent with the basic design and purpose of the product, and with the basic purpose of the insurance firm.”

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