The strapline for the CII states three core principles: standards, professionalism, and trust, applicable to us, our members and our Corporate Chartered firms. What these elements have in common is seeking a transparent environment for policyholders where protection is provided and the outcome of the settlement of claims is timely and effective. It is no-one’s objective to create anything else, but it is clear from the current business interruption situation and the FCA test case, that there has been a lack of clarity in expectation and understanding between insurers and their customers, particularly SMEs, and indeed with the Government and the wider public.
The major insurers in the sector are to be commended for their co-operation with the FCA and the recent High Court’s ruling has allowed a collective airing of some crucial areas of dispute. We know this is not the end of all interpretation scenarios for policyholders, but it should have provided significant progress is removing ambiguity for the future. And, it couldn’t have come at a more pertinent time, as we see a business landscape across the whole of the UK, and indeed the world, marred by the effects of the coronavirus pandemic.
Business interruption insurance is a crucial product for many organisations, especially SMEs. It provides for a wide range of risks that could threaten the survival of a business, aside from the current contentious areas of non-physical damage related claims. It is therefore imperative that the whole product area of business interruption is not overshadowed by the current case. Many claims have always been paid and will continue to be paid. The Association of British Insurers has confirmed that UK insurers expect to pay out £900 million in business interruption claims in response to the COVID crisis, as part of the £1.7 billion that the sector is paying out for COVID-related claims across business interruption, travel and event cancellation insurance. The figures for Lloyd’s and the global specialty market are higher.
Of course, these are completely unprecedented times, ones which have directly confronted the limits of standard private insurance protection in the modern age. This is why it is so important that all the lessons from the past are fully taken onboard and our many incredible risk professionals work together on innovative solutions. Then we as a profession, and society, will be able to move beyond the events of 2020, and restart growth with confidence and ambition.
Looking to the future, there are some clear activities which insurers, brokers, and the Government alike, can focus on in order to reduce the current ambiguities and expectation gaps and therefore the need for court cases such as these in the future.
Firstly, product governance processes, including gaining greater clarity on product wordings. It is vital in any competitive market for providers to have the freedom to innovate and design new products, and not be constrained by proscriptive product regulation. However, where the same words and phrases are used in different contracts, there should be a consensus among professionals about what those words and phrases mean, so that consumers can be reassured that two policies that look the same on paper cover the same risks.
Secondly, the profession should improve advice processes to help clients understand both the insurable and non-insurable risks that they face, and what they can do about each one. For example, a discussion with businesses about all the risks they face, followed by an explanation of how risks can be mitigated, to give a much clearer picture of what is and what is not insured.
Finally, the profession as a whole must establish an approach to pandemics and other systemic risks that clearly sets out the scope of government intervention. This will allow business to plan for the future, knowing that the government is prepared to cover risks that can only be borne by the taxpayer, allowing the market to cover risks that it is capable of covering.
In focussing on these three activities, the profession can provide a level of confidence which is vitally important, perhaps more now than ever before. As is always true, public trust is one of the most significant factors in what allows our profession to be of most benefit to society. Moreover, it is in the midst of such trying times that we have a real opportunity to prove our worth.