Central Bank publishes Business Interruption Insurance Supervisory Framework

• Framework sets out the Central Bank’s expectations of insurance firms in handling COVID-19 related business interruption insurance claims
• Where customers have an entitlement to claim under a business interruption insurance policy, the Central Bank expects that claims will be processed and paid promptly and fully
• Where cover and related issues are disputed, the Central Bank expects firms to pay the reasonable costs of customer plaintiffs in agreed test case litigation

Today (5 August 2020), the Central Bank publishes its COVID-19 and Business Interruption Insurance Supervisory Framework (PDF 958.98KB) (the Framework), the objective of which is to seek early identification and resolution of issues which have the potential to cause customer harm, driving clarity for affected businesses as quickly as possible.

The Framework outlines:

• The Central Bank’s approach to the identification of potentially systemic issues of customer harm;
• The Central Bank’s expectations of insurers to address those issues where identified; and
• The escalation strategy for intervention by the Central Bank where necessary.

In line with regulatory requirements, insurance firms have an obligation to act honestly, fairly and professionally in the best interest of customers, and the Central Bank expects firms to adopt a customer first approach to the resolution of business interruption issues.

Some business interruption insurance policies do provide cover for the circumstances of interruption related to the outbreak of COVID-19.  Others clearly do not.  And in some cases the position is unclear but a strong or reasonable argument can be made that they do provide cover. The Framework is designed to identify and monitor insurers’ approaches to these types of policies, to set out our expectations in relation to same, and to indicate that matters will be escalated where those expectations are not met.

Director General of Financial Conduct, Derville Rowland, said: “We recognise that Covid-19 has placed immense pressure on many businesses and that they need clarity on business interruption insurance issues. Our Framework, underpinned by robust supervisory engagement and legal analysis, seeks to drive that clarity. The Framework reiterates our core message to firms: that they honour valid claims in full and pay them promptly.

“Furthermore, where cover is disputed and businesses have pursued litigation, insurance firms should be cognisant of the significant costs burden faced by their customers. We therefore expect that in circumstances where the firm obtains the benefit of a court’s interpretation of issues at hand, a firm should agree to pay the reasonable costs of customer plaintiffs in agreed test case litigation and should not seek its costs against these plaintiffs.

“Finally, where a legal action has been concluded and the final outcome has a wider beneficial impact for other similarly impacted customers, firms will be required to take urgent remedial action to ensure that those customers obtain the benefit of the final outcome.”

While the Central Bank cannot publically communicate on specifics of the supervisory work undertaken under the Framework, we will examine all possible options within the full suite of our powers and intervene where appropriate.