Overview
In a series of recent statements, the UK Financial Conduct Authority (FCA) has set out how it expects the insurance industry to help consumers and businesses affected by the coronavirus.
The FCA would like to see a degree of consistency across the industry in how business interruption claims are handled. To help to achieve such consistency, the FCA is planning to ask the English court to make declarations about the scope of various business interruption (BI) clauses.
At this difficult time, policyholders will welcome the FCA’s approach. Insurers will want to treat customers fairly, but this gives rise to various issues for insurers in relation to competition law.
The FCA has stated that it “want[s] to see a degree of consistency for customers” in the way that coronavirus-related claims and situations are dealt with.
Insurers could understand this to be setting out a desire by the FCA for cooperation between insurers on this issue (and not merely a reference to the FCA’s plan to ask the court for rulings on the meaning of certain BI wordings). It is critical for insurers to remember that UK and EU competition laws prohibit agreements, arrangements and understandings between businesses which have the object or effect of restricting competition. Collaboration between competing insurers on, for example, the treatment of claims (i.e. acceptance or rejection of future claims) could fall foul of the competition rules.
Infringement of this prohibition is punishable by fines of up to 10% of the annual worldwide turnover of the insurer’s entire corporate group. In competition law, it is not a defence that the infringement was well-intentioned, nor that it was encouraged by a state authority (although it may be a mitigating factor when setting the level of any fine). There are many examples where industries behaved in a manner which was encouraged by national authorities but were subsequently condemned by competition authorities.
The FCA has confirmed to us that the statement "was not intended to suggest that insurers should coordinate their responses to the coronavirus situation in breach of their competition law obligations. Rather, the reference to the FCA wanting to see 'a degree of consistency for consumers' reflects the FCA's expectation that all insurance firms should be considering their obligations under our rules to provide fair customer outcomes in light of the ongoing Coronavirus situation. Firms should be assessing the position of their own customers/products taking into account the expectations set out in any FCA guidance and identify any appropriate actions to take."
The FCA's response is a timely reminder that even during the crisis, each insurer is still individually bound to comply with the competition rules. Whilst a safe path of coordination might well be lawful, it needs clarity: a clear pro-competitive objective, careful planning, transparent and inclusive engagement and record-keeping and guidance throughout.
The FCA statements:
- Insurance and coronavirus (Covid-19): our expectations of firms
- FCA statement - insuring SMEs: business interruption
- FCA seeks legal clarity on business interruption insurance alongside package of measures to help consumers and small businesses
- Product value and coronavirus: draft guidance for insurance firms
