FCA finds good and bad in firms’ handling of BI claims after test case

The Financial Conduct Authority (FCA) has published the findings of its review into how firms dealt with business interruption insurance (BI) claims in the wake of the Supreme Court’s judgment in the BI test case which was handed down in January 2021. The findings of the review are published as the latest BI claims data (link) (as of 5 September 2022) shows that insurers have paid out £1.5 billion to more than 36,000 small businesses as a direct result of the test case.

The FCA had reviewed a sample of firms’ processes for handling BI claims during 2022 to understand the extent to which they were handled promptly and fairly and to identify lessons learned for the market. This investigation had shown that some firms had fallen short in meeting the FCA’s claims handling requirements or had not met what was required of them consistently. Members can access the review’s findings by clicking here Claims handling lessons learned from business interruption insurance (link).

The FCA said its review had identified good practice by insurance firms, putting customers at the heart of the claims process. This included:

Firms were quick to move resources to priority business areas and employed technical external expertise where necessary.
Interim payments were issued using basic information received from policyholders, with more detailed assessments of further information to determine full and final settlements.
A range of channels were made available for customers to contact firms, such as greater telephone access and web-based forms.
Firms issued proactive communications encouraging policyholders to provide information to progress their claims.

However, the review also identified key areas where firms did not meet FCA expectations regarding fair treatment of customers. Problem areas included:

Firms and their partners did not produce clear and robust conduct Management Information, which affected their ability to identify and address delays in the claims process.
Some firms did not have records of policy wordings that were easily accessible for claims handlers, which resulted in delays for customers.
Firms did not adequately identify vulnerable customers or took an inconsistent approach in dealing with the needs of vulnerable customers, in keeping with Financial Guidance FG21/1.
Quality assurance reviews were too focused on the financial outcome of the claim rather than the full customer experience and failed to identify where customer experienced unreasonable delays.
Customer communications were not always tailored to the recipient.

The regulator said that claims handling was an important part of the insurance lifecycle and that it remained an area of focus in its supervisory strategy. Looking forward, the FCA said that Senior Managers were expected to have a clear understanding of its rules and demonstrate that they were putting customers at the centre of the claims process through robust conduct oversight to ensure their fair treatment. Firms were encouraged to consider their practices in the light of the findings. ‘We encourage firms to undertake a review of their own claims processes and procedures, and where applicable, outsourcing arrangements (see SYSC 13.9) to make sure these remain effective in mitigating the risk of customer harm’, the FCA noted.

The FCA said that it will request another submission of BI claims data for publication in March 2023, which is expected to be the final data collection.