FCA conduct expectations of general insurance firms in the light of COVID-19

Published 24 April 2020

The FCA, like the rest of us, is settling in to the new normal imposed by COVID-19.  As part of this, the FCA’s guidance (there have been no material COVID-19 rule changes for general insurance as yet) has moved beyond the “Keep Calm and Carry On” stage of expecting firms to continue to operate effectively and consider very carefully the needs of their customers (and show flexibility in their treatment) to increasingly specific statements for conducting general insurance business.

Expectations of brokers

Brokers are encouraged to keep abreast of market developments so they can suitably advise their customers.

Vulnerable customers

Noting that many consumers are currently in a vulnerable position because of the pandemic, the FCA would not expect to see their ability to claim impacted by circumstances over which they have little control, like customers needing to work from home or commute by car.

Operational resilience and business continuity

The FCA expects firms to have a Senior Manager responsible for business continuity and for managing the impact of COVID-19. Where firms identify gaps through their planning that will, or could, cause harm to customers, they should notify the FCA through their usual supervisory contact.

Travel insurance

For existing customers the FCA expects firms to clearly communicate any policy exclusions that result from COVID-19. Where a consumer bought annual travel insurance to cover the risk of cancellation or curtailment, and is relying on a policy renewal to cover travel arrangements made before the situation escalated, the FCA 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, firms can renew or consider claims under the terms of the original policy for these travel arrangements. 

FOS guidance adds that where consumers cancelled trips earlier than might be expected, insurers should consider whether a later claim would have been accepted (for example, if travel advice or restrictions would have meant the consumer would have ultimately had to cancel before the date of departure).

The effective date of the main part of the ICOBS (Access To Travel Insurance) Instrument 2020 (designed to provide better information to customers regarding medical conditions in travel policies) has been postponed from November to a date to be decided.

Motor and home insurance

The FCA expects motor and home insurers not to reject claims because of a consumer’s understandable temporary change in how they use their vehicle and their home address, in response to Government advice and the emerging situation. The FCA expects motor insurers to continue to provide cover for consumers’ car, motorcycle or van insurance due to their temporary situation, in line with Government policy of not being able to receive (and not needing) a new MOT certificate. This includes at renewal, to ensure customers are able to shop around for their insurance.

Private medical insurance

Most privately insured treatment is likely to fall under non-urgent care and may need to be delayed due to COVID-19. Insurers need to communicate effectively, in a timely manner and compassionately with customers.

Business interruption insurance

The FCA, recognising that most BI policies do not cover pandemics, reminds insurers and brokers that it expects them to provide clear, accurate and timely communication to SME customers who are unsure whether they have appropriate cover in place. It is also collecting information from firms to assess how they are interpreting their policies. The FCA expects policies where the firm has an obligation to pay out to be assessed and settled quickly.  Where there are reasonable grounds to pay part of a claim, the FCA wants firms to adopt an approach on making interim payments.  If firms disagree they are to send the FCA the grounds for reaching that decision including how it represents a fair outcome for customers. The ability of firms now having turnover below £6.5m and fewer than 50 employees to access the FOS is noted and in due course the FOS plans to update its guidance on the approach it will be taking to BI claims.

Product suspension

The FCA understands that firms may want to suspend some product offerings.  In these instances, the FCA’s expectations of firms are:

• Firms must consider the needs of their customers carefully, in particular where the customer is relying on a renewal for continuity of cover (taking into account 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).
• Consumers who are due to renew their policy should have the policy coverage and exclusions clearly explained to them in all circumstances. Any exceptional policyholder cases need should be considered by the insurer and all changes need to be clearly communicated.
• Alternative products should not be sold to consumers that do not meet their demands and needs, and are not in their best interests.

Renewals

Firms considering changes to their existing policies at renewal need to consider the existing requirements for product design. Firms making changes to policies must follow the appropriate processes for making these changes:

• If firms are changing their policies to exclude COVID-19, the FCA expect them to make it very clear to consumers that their policy has changed, and of the exclusion – in both cases before renewal.
• The FCA expects firms to consider the needs and circumstances of individual consumers (taking into account any vulnerabilities) when considering what may be an appropriate change to make. Firms must be able to demonstrate that they are treating their customers fairly.
• Firms are also expected to make it clear in other relevant communications about exclusions to potential consumers, to ensure their messaging is fair, clear and not mis-leading.
• Firms may experience challenges in contacting consumers, for example if they are unwell. This may make it harder to meet key conduct requirements such as assessing consumers’ demands and needs at renewal.
• If this is the case, the FCA expects firms to continue to seek to meet these requirements, including the obligation to act honestly, fairly and professionally in accordance with the best interests of the customer. The FCA has not prescribed how firms should go about meeting these requirements.
• It may be reasonable for firms to rely on existing information that they already hold, for example if this information is recent, is still expected to be accurate, and there have not been significant changes to the product.
• It might also be reasonable for a firm to decide that providing continuity of cover meets a customer’s best interests, where there is no evidence to show the contract is inconsistent with the customer’s demands and needs or wouldn’t otherwise be unsuitable.

Firms will also need to ensure that they comply with all relevant legal requirements in relation to their contracts. If, once the customer is better, they contact the firm to say that the policy did not meet their needs, then the FCA expects firms to treat them fairly.

Mid-term adjustments

The FCA is aware some firms may wish to notify policyholders of mid-term changes to their existing policies. The FCA expects firms to consider the following:

• Whether there is a written term in the contract that states they are able to make that change.
• Whether the terms they intend to rely upon are fair and transparent under the Consumer Rights Act 2015 (or the Unfair Terms in Consumer Contracts Regulations 1999 if appropriate).
• Whether they are applying the term properly, in accordance with the contract (for example, by complying with any notice period and relevant FCA rules).

Whether due regard has been given to the interests of their customers and treating customers fairly (per FCA Principle 6). Also, to the information needs of their customers and communicating information in a way that is clear, fair and not misleading (per FCA Principle 7).

Wet ink signatures

FCA rules do not explicitly require wet-ink signatures in agreements, nor do they prevent firms from using electronic signatures in accordance with legal advice on effectiveness.  The use of electronic signatures is subject to reviewing associated risks and harms, and taking appropriate steps to minimise them.

For more information or advice, please contact one of our experts in our Insurance Advisory team

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