Consumer Insurance: Claims and Complaints Handing During the Covid Pandemic

Two weeks ago, we wrote on the guidance issued by the Financial Conduct Authority and the Financial Ombudsman Service in relation to business interruption insurance here:

www.farrarsbuilding.co.uk/business-interruption-insurance-handling-claims-and-complaints-during-the-covid-19-crisis/

Consumer insurance policies pose a similar challenge for the management of claims and complaints in the wake of the Covid-19 pandemic. Like business interruption claims, policy coverage will not always be clear-cut and a number of policyholders will be in financial difficulty. Unlike business interruption insurance, however, there is no industry-wide test case being brought by the FCA to bring uniformity to the interpretation of key terms in the policies.

The FCA has issued guidance for insurance firms regarding customers who are in temporary financial difficulty due to the Covid-19 response that will be relevant to treating consumers fairly, and should be taken into account by insurers when resolving disputes.

Timescales and Priorities

The FCA recognises that insurance firms are facing practical difficulties in responding to complaints. The 8 week period in which to provide a response required by FCA rules is no longer strictly expected. Firms are to send a holding reply explaining the reasons for the delay and the likely time when a response will be received, together with the right to refer the complaint to the FOS.

Consumers and claims management companies have been asked to show patience and allow extra time before referring complaints to the FOS, although a swift referral can still be justified where financial hardship is particularly pressing.

Given the volume of business to attend to, the FCA has asked firms to prioritise:

• paying consumers who have accepted offers of redress
• handling complaints from consumers whose circumstances make them especially vulnerable to harm if their complaint is not resolved promptly and fairly
• handling complaints from micro-enterprises and small businesses who are likely to face serious financial difficulties if their complaint is not resolved promptly and fairly

In particular, firms should be aware that the Covid-19 emergency may cause many customers to become vulnerable due to its effect on health, employment, social isolation and mental or physical wellbeing. Consumers who are facing such challenges are urged to explain these to the firm handling their complaint.

Some of these points are practical reminders too, as the Insurance Act 2015 s.13A provides for damages for not paying within a reasonable time where there were not reasonable grounds for disputing the claim. It may be argued that such damages include the consequential losses sustained by businesses due to non-payment, and these may include those caused by business failure that would not have arisen had timely payment been made.

Customers in Financial Difficulties

The FCA Guidance on Coronavirus and Customers in Temporary Financial Difficulty can be read here:

www.fca.org.uk/publications/finalised-guidance/coronavirus-customers-temporary-financial-difficulty-guidance-insurance-premium-finance

Firms are to identify customers who are in temporary financial difficulties as a result of coronavirus and consider how to comply with FCA rules, including:

• PRIN 6 A firm must pay due regard to the interests of its customers and treat them fairly; and
• ICOBS 2.5.-1 A firm must act honestly, fairly and professionally in accordance with the best interests of its customer.

The FCA states that this may involve re-assessing the customer’s circumstances and needs, which might have changed due to Covid-19 and the lockdown regulations. In many cases it will be appropriate to amend customers’ policy coverage so as to save expense and avoid leaving them without suitable insurance cover.

If amendments to the insurance cover do not help alleviate temporary payment difficulties, then payment deferrals for a period lasting between 1 and 3 months are expected by the FCA. Firms are to grant any such request unless, acting reasonably, they have determined that it is obviously not in the customer’s interests to do so.

In order to facilitate payment deferrals, the FCA has disapplied rule 6.7.18 and 6.7.19 of the FCA Handbook, both of which impose restraints on the re-financing of customers’ credit. As a result, firms do not have to enquire into the circumstances surrounding each request for a payment deferral, nor whether temporary difficulties are connected to Covid-19. Information gathering and consultation in order to determine whether payment deferrals would be in customer’s best interests can be done at a cohort level.

The FCA say they expect a proactive approach to implementing forebearance measures. This includes informing the consumer of the implications this will have on future instalments and applications for credit or insurance. It also includes pre-empting any difficulties that a customer may have in paying when a deferral period ends and avoiding any adverse consequences for the customer, e.g. to their credit history or future insurance premiums.

Other issues

The FCA has provided useful considerations for consumers at www.fca.org.uk/consumers/insurance-and-coronavirus. The issues raised in relation travel, motor & home insurance, event cancellation and policy renewal emphasise the issues likely to arise, and currently without providing solutions or guidance to either insurers or consumers.

Disputes and the Financial Ombudsman Service

Where claims are contested or a complaint is made, the vast majority of disputes will fall within the jurisdiction of the FOS, which can order compensation of up to £350,000 in matters involving individual consumers or businesses with an annual turnover of less than £6.5 million and under 50 employees.

The FOS is working closely with the FCA and is taking Covid-specific considerations into account when determining disputes. Guidance has been issued to businesses to address complaints about financial difficulties and coverage disputes.

FOS guidance is to be found at www.financial-ombudsman.org.uk/coronavirus.

Financial Difficulties

Central to the FOS’s approach to complaints about financial difficulty are the principles set out in the FCA’s Consumer Credit Sourcebook and the “fair and reasonable” test used to evaluate the approach of the insurer.

In line with the FCA guidance considered above, financial businesses are expected by the FCA to proactively look for signs of financial difficulty. It has been said that the FOS will expect firms to have considered forebearance measures. In addition to payment deferrals, these might include freezing interest and charges, reasonable arrears rescheduling and debt write-off where appropriate.

Specific Insurance Policies

The following Covid-19 related considerations are outlined by the FOS in relation to particular types of insurance cover:

Travel insurance

• Individual circumstances will always apply including the policy terms, when the booking was made and when the policy was taken out;

• Consumers are referred to the CAA and ABTA for information on how to request refunds from their holiday providers. Also see the Competition and Markets Authority  who have been pro-active in helping to secure  refunds for consumers affected by Covid-19 https://competitionandmarkets.blog.gov.uk/2019/06/27/holiday-deposits-and-cancellation-fees-are-you-being-treated-fairly/. Whether or not they have been able to recover their losses from them will be taken into account;

• Foreign and domestic government information about travel restrictions will be considered in the same way as FCO advice would be;

• Self-isolation and cancellations due to sickness will be considered as ‘travelling against medical advice’ would be;

• Insurers are expected to take a pragmatic view of decisions not to travel, bearing in mind factors including the purpose of travel, the rapid pace of changing advice and the ability of consumers to contact their insurer;

• In cases of early cancellation, insurers are expected to consider whether a claim would be accepted if the consumer cancelled later.

Wedding Insurance

• Insurers are expected to take a “fair and reasonable” approach to the interpretation of the coverage terms and any exclusion clauses. Even where an exclusion clause does apply, the FOS says it expects insurers to take into account the unprecedented situation created by the Covid-19 response when deciding whether to apply it.

• For example, if an exclusion applies in relation to a government act or regulation, insurers are invited by the FOS to consider whether the wedding would have been cancelled in any event, e.g. through sickness or self-isolating

The FOS have said that although demand for the ombudsman service is likely to be high, their technical desk is open for firms should they wish to talk informally about a complaint that has been received or enquire about how the FOS handles disputes in their circumstances.

Though there are likely to be a large number of complaints made to FOS in due course, Covid-19 has had the effect of reducing complaints this year by, apparently, about 23%.

Despite FOS guidance so far having been limited to travel and weddings insurance, it is likely that much of consumer insurance will be affected by Covid-19 in some form or another, and subject to dispute and FOS resolution. In particular, health insurance and loss of earnings insurance are likely to give rise to coverage and other issues, in particular on quantum and duration of coverage if illness proves protracted.

We will keep you up-dated on these and other issues on consumer insurance as consumer complaints with a Covid-19 point come to be adjudicated on. It will certainly be interesting to see how the “fair and reasonable” test for adjudicating on FOS disputes comes to be exercised in the light of Covid-19.

John Meredith-Hardy & Tom Emslie-Smith

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