Impact of Covid-19 on the Insurance Sector and FCA’s New Directives

The United States and the World Health Organization (WHO) declared the novel coronavirus a pandemic, whose spread has now reached to all across the world, and by now has infected over 2,00,000 people in more than 200 countries and claimed more than 130,000 lives (as per WHO data). In the United Kingdom (at the time of writing), around a lac of people have been identified infected with the deadly virus and around 13,000 people have already lost their life. In this scenario, the insurance sector and the players come into the picture, who are struggling as well to cop-up with the situation. So, now the question arises what is next for the Insurance sector, amid the pandemic and after its containment?

The insurance industry of the United Kingdom ranks in the top five across the globe and is one of the biggest in Europe. The UK's insurance sector is one of the largest contributors to the economy in comparison to any other similar sectors. At a basic level, the insurance sector can be broadly classified into two main categories, Life insurance and General (Non-Life) Insurance. Life insurance is a contract between the insurer and the policy buyer for a certain sum of money which would be paid either after a set period or on the death of the insured person. General or Non-Life Insurance caters to the specific needs such as Motor insurance, Travel Insurance, Home Insurance, Health Insurance, Fire & Theft Insurance, and many other specific needs.

Financial Conduct Authority (FCA), the conduct regulator had recently released what it expects the insurers to do, given the unprecedented impact of coronavirus, as many consumers are currently in a vulnerable position. FCA expects the insurers to address their customers’ needs in a flexible manner as they have little control over the claims under these circumstances. FCA also expects clear communication regarding any policy exclusions from the insurers, which may impact the cover and use of individual policies in both new and existing policies.

On the same time, all the non-life insurance companies are expected to manage the operational impact of the Covid-19 pandemic by having business continuity plans in place along with robust systems and controls to continue to operate effectively. Insurers are supposed to perform with honesty, due diligence, and good professional standards in the best interests of customers.

Due to an unprecedented economical impact of the coronavirus outbreak, which is likely to prolong for at least few more months, would probably impact the small and medium-sized business owners who fear complete catastrophe of their business operations. Typical business interruption policies pay up to £100,000 to cover for unprecedented circumstances, such as flooding or fires to support the businesses. Business owners might plan some legal action against UK’s largest insurance companies.

According to the Financial Conduct Authority, most of the claim applications were regarding business interruption during the pandemic, which did not have the right coverage to warrant a pay-out. The claimants had the basic cover which do not include the pandemics. However, FCA believes that this might be very disappointing for the policy buyers. Moreover, the supreme authority has said that it no plans to intervene on behalf of the businesses and has also warned the UK businesses that most of them would not be eligible for insurance coverage amid the pandemic lockdown.

On the same time, the Financial Conduct Authority has asked the insurance companies to entertain claims in a speedy manner to firms or be ready with an explanation for the delay. The FCA clarified that if the claims can be settled partially but not in full, on reasonable grounds, the insurers must make an interim pay-out. This move is to protect the interest of the businesses and relieving pressure amid the Covid-19 lockdown.

If the insurers are not processing the claim applications, they need to explain the industry watchdog as to how they made the decision. FCA has asked the insurers to expedite the process in order to ensure that financial pressures on businesses are not aggravated by slow processing of claims and should be processed in a quick and efficient manner.

The supreme authority aims to support consumers and businesses in the prevalent pandemic crisis. The industry watchdog has asked the insurers for quicker claim settlements specifically for the small and medium scale businesses which got impacted due to the coronavirus outbreak. However, FCA has not yet intervened in the matters of individuals' policies.

Some businesses are on the verge of shutdown, due to insurers refusing to settle their claims as a result of the Covid-19 lockdown. As most business interruption policies which are held by small and medium-sized businesses did not include pandemics coverage and have basic cover; therefore, the insurers can deny the processing of claims with respect to the novel coronavirus.

Insurers and the pandemic scenario

The insurers on their part are taking into the account that this a critical hour for most of the businesses and they will put their best foot forward in settling valid claims and making interim payments to their policyholders.

In order to maintain their sales and meet increased demand amid the outbreak of the coronavirus pandemic, life insurance companies are open to finding workarounds and new solutions.

Amid global lockdown, people are advised to stay indoors and maintain social distancing. In the present scenario, medical tests which were done earlier before underwriting the policy cannot be conducted now. Hence, the medical exam for life insurance is becoming non-essential.

Insurance companies have adopted smarter ways to operate in these new circumstances and are creating new ways of underwriting new revenue streams. In addition, the insurers are relying on data for underwriting new policies, which includes information from prescription databases, electronic health records & medical history and other related records.

Though there are some fallouts as well, some life insurers are going to discontinue policies for people aged 70 and above. Prudential Plc has discontinued its long term (30-year term) life insurance, though plans for the short term are still available.

In terms of market capitalisation, UK has some of the biggest insurance companies. Prudential Plc (LON: PRU), Aviva Plc (LON: AV.) and Legal & General Group Plc (LON: LGEN) are some popular insurers in the United Kingdom.

  • Prudential Plc at the time of writing on 17th April 2020 (10:38 AM GMT) was trading at GBX 1024.00, up by GBX 60.81 points or 6.31% from its previous day’s closing of GBX 963.20.
  • Aviva Plc at the time of writing on 17th April 2020 (10:40 AM GMT) was trading at GBX 247.40, up by GBX 6.30 points or 2.61% from its previous day’s closing of GBX 241.10.
  • Legal & General Group Plc at the time of writing on 17th April 2020 (10:49 AM GMT) was trading at GBX 207.10, up by GBX 12.65 points or 6.50% from its previous day’s closing of GBX 194.45.


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