UK Insurers Back Down on Coronavirus Policy Dispute

The UK insurers have shown intent on settling the claims with reference to business interruption insurance policies. The move came after the industry watchdog asked them for clarifications on the policy wordings and also to explain the exclusion of the coronavirus pandemic in the court.

The FCA confirmed yesterday that it would be publishing a list of 16 insurers who underwrite these wordings and have selected a representative sample of 17 policy wordings to include within the court proceedings. In addition, to assist with the court case in this context, the FCA has invited a subset of 8 insurers. The regulator has sought a range of coverage across the key arguable issues, whilst minimising the number of parties engaged before the court and accordingly selected the policy wordings and insurers for the court case.

The industry watchdog expects the relevant rulings and the outcome of the court proceedings to provide comprehensive clarity for all business interruption insurance policy providers and insurers in the United Kingdom. As referenced by the FCA in earlier announcements, the court proceedings seek to address the legal interpretation of just a small minority of policies and schemes; and it remains the case that the great majority of business interruption claims are not expected to be eligible under their coverage terms for COVID-19.

How the issue came into the light?

A few weeks earlier, nearly five hundred businesses joined forces to pursue legal action against Hiscox Ltd in a row over business interruption claim settlement amid the pandemic. These businesses represented different sectors and pooled their resources to seek judicial action against the popular insurer. Most of the companies were leisure companies. The Leisure companies are among the worst-hit businesses amid the pandemic.

Hiscox Ltd, in its policy offering, clearly stated that it would pay out when business was forced to shut owing to a notifiable disease and sold business interruption insurance policies to firms before the novel coronavirus outbreak. The Bermuda-based insurer expects to settle claims related to event cancellations and other leisure activities to the tune of £140 million, however, does not honour claims for pandemics.

Most policies are designed to cover businesses for risks that happen to the property, plant, or equipment; physical risks like fire or flood and other everyday risks that businesses face. These policies were not designed, nor priced to cover for business interruption caused by the pandemics, not just in the UK but also in the western markets.

Therefore, the discord among the policyholders and the insurers in understandable. Thankfully, there is a process to take this to the courts, which would hopefully provide a speedy way to resolve these disputes.

This will certainly deter the trust level of policy buyers while buying or renewing their respective policy. This is also a tricky situation for insurers due to the devastation caused by the pandemic, the policy renewals and new premiums written are likely to go down. Let us discuss some company which are in support of the FCA’s decision to move to court.

• Hiscox Ltd (LON:HSX)

Hiscox Ltd is an international insurance group headquartered in Bermuda. The company is a well-known brand in the insurance sector. The company has acknowledged that these are extremely difficult times for businesses. However, the company is committed to seeking speedy solutions of these claim settlement disputes and has stated that it would provide support to the FCA in the court to provide clarity for businesses and insurers regarding the policies.

According to its trading statement for the first three months of 2020 period ended 31st March, the Gross written premiums of the company were up by 2 per cent in constant currency to $1,181.8 million.

The company is honouring all claims in the sphere of entertainment, leisure and travel as usual. The company has reiterated that it would extend its support to FCA for resolving matters relating to business interruption policy claims in the industry.

On a Year to date (YTD) basis, the stock delivered a negative price return of 47.80 per cent. On 2nd June 2020, while writing at 01:34 PM, before the market close, Hiscox Ltd shares were marginally up by 4.69 per cent against its previous day closing price; trading at GBX 782. Stock's 52 weeks High and Low is GBX 1,777 /GBX 666.40. The beta of the company stood at 0.74, indicating lower volatility as compared to the benchmark index. Hiscox Ltd’s market capitalisation stood at £ 2,586.90 million.

• RSA Insurance Group Plc (LON:RSA)

RSA Insurance Group Plc is a British general insurer, offering insurance to individuals and businesses ranging from small businesses to large corporations. The primary operating segments are differentiated based on geography and comprise of Scandinavia, Canada, UK & International and Central Functions.

The Group carried forward the momentum of 2019 and delivered solid results in the first quarter of 2020. However, the Group is currently taking prudent measures following the crisis triggered by the novel coronavirus. The company supports the stance of FCA. By the end of April, the company received lots of valid claims with reference to events cancellation, and travel.

On a Year to date (YTD) basis, the stock delivered a negative price return of 29 per cent. On 2nd June 2020, while writing at 02:07 PM, before the market close, RSA Insurance Group Plc shares were marginally up by 2.77 per cent against its previous day closing price; trading at GBX 414.90. Stock's 52 weeks High and Low is GBX 597 /GBX 326.90. The beta of the company stood at 0.94, indicating slightly lesser volatility as compared to the benchmark index. RSA Insurance Group Plc’s market capitalisation stood at £ 4,176.36 million.

• Zurich Insurance Group AG (LON:0QP2)

Switzerland based Zurich Insurance Group AG provides General Insurance products. Zurich Insurance Group is in consonance with the UK’s watchdog, for seeking more clarity on policy coverage with reference to business interruption amid the catastrophe caused by the pandemic.

Though uncertainty exists given the continuing nature of the devastation caused by the pandemic, the company is likely to make provision of USD 750 million with reference to claims following the devastation caused by the pandemic for the full year 2020. During the lockdown induced by Covid-19, the company has promptly settled claims and has a higher settlement ratio along with lesser disputes.

Comparative chart of HSX and RSA

(Source: Thomson Reuters)