In a recent speech delivered at the City Financial Global event, Julia Hoggett (Director of Market Oversight at the FCA) set out the key risks created by operating in market conditions brought on by COVID-19, and the FCA’s expectation that markets remain clean “whatever the times and whatever the challenges“.
The High Court has decided that a series of reports prepared by the accountants Deloitte LLP (“Deloitte”) for Sports Direct International PLC (“Sports Direct”) (now known as Frasers Group Ltd) in relation to a proposed tax structure were not prepared for the sole or dominant purpose of litigation, and were therefore not protected from disclosure by litigation privilege.
The latest instalment of the Financial Conduct Authority’s (“FCA“) test case on business interruption (BI) insurance took place last Friday, with a “consequentials” hearing that dealt with the effect of the judgment, ‘leapfrog’ certificates and an application from a proposed new party.
HM Treasury has responded to a letter from The Association of British Insurers (ABI), confirming the Government’s firm expectation that “grant funds intended to provide emergency support to businesses at this time of crisis are not to be deducted from business interruption insurance claims.”
The ABI’s Letter
Huw Edwards, Director General of the ABI, wrote to John Glen, Economic Secretary to HM Treasury, last week regarding the issue of insurers deducting certain government grants from COVID-19 claims payments.
Mr Edwards’ letter confirmed that 12 insurance firms (including Avivia, Zurich, and RSA, among others) have agreed not to deduct the Coronavirus Small Business Grant Fund; the Retail, Hospitality and Leisure Grant Fund; the Local Authority Discretionary Grant Fund (and their equivalents in devolved nations) from any COVID-19 claims payments. Where such deductions have already been made, the firm concerned will adjust the settlement amounts accordingly.
Mr Edwards also detailed further actions the insurance industry is taking to help businesses recover from the effects of COVID-19, including continuing to process claims worth around £1.8 billion and setting up an £84m COVID-19 Support Fund to help communities and charities who have had their funding hit by lockdown.
HM Treasury’s Response
In Mr Glen’s prompt response (sent the same day as ABI’s letter), he commended those firms who have committed to not making deductions to BI settlements. However, Mr Glen noted his disappointment that certain firms had not made the same commitment, stating that the deductions are “quite clearly not in line with the intention of the support schemes“. Mr Glen commented that these deductions mean taxpayer funds are “channelled into savings for insurers, rather than supporting businesses“.
As such, Mr Glen encouraged insurers who have not made the commitment to follow the example set by others, “to respect the spirit of these government support schemes, and to consider the difficulties being faced by businesses during this time.”
Mr Glen warned that if grant deductions continue to be made, the Government will consider further action against those insurers engaging in such conduct.
Mr Glen also noted that the FCA had recently sent a “Dear CEO” letter to insurers. This letter set out the FCA’s expectations for insurers following the recent High Court judgment in the BI test case, including the requirement that insurers consider carefully the appropriateness of making grant deductions from claims payments.
Comment
The Government has clearly stated that the financial support issued to businesses during the COVID-19 pandemic must be protected. The Government’s stance will therefore provide some level of comfort to businesses with outstanding insurance claims who received government grants as a result of COVID-19. Those insurers who have not pledged against making grant deductions should seriously consider altering their position on the matter, or risk potential further action from the Government.
The Financial Conduct Authority (“FCA“) has just responded to the recent High Court judgement in the Business Interruption (“BI”) test case with a “Dear CEO” letter, which sets out the steps insurers must take over the coming weeks and months.
According to XPS, the pensions consultancy firm, in July and August of this year 51% of pension transfers, equating to twenty five million pounds in pension savings, were flagged as at risk of a pension scam.
CPS Advisory Limited, a Swansea-based advice company, has been fined £130,000 from the Information Commissioner’s Office (ICO) for making over 100,000 calls to people without lawful authority between 11 January 2019 and 30 April 2019.
We know that the regulator has long been concerned about different (and lower) premiums been offered to new customers compared to loyal customers who may not shop around for their insurances (the so called “loyalty penalty”). The FCA says that its work in the area has identified 6 million policyholders paying high or very high margins in 2018, where if they had paid the average for their insured risk they could have saved £1.2 billion.
The High Court ruled yesterday in favour of the Financial Conduct Authority (“FCA“) on what the FCA describes as the “majority of the key issues” in its test case on insurance cover for business interruption (“BI“) losses incurred during the COVID-19 pandemic and subsequent Government imposed lockdown.
The decision means that insurers may now have to pay out on hundreds of thousands of BI claims to businesses that previously had their claims declined by insurers.
But some commentators have warned that it may still take some time for policyholders to get their claim money. There is the prospect of an appeal by the insurers in the test case, possibly directly to the Supreme Court. And that could take months even if the process was expedited. We wait to see whether, in the meantime, the FCA might intervene and order insurers to make interim payments to policyholders whilst any appeal proceeds.
In a “Dear CEO” letter published on 4 September 2020, the Financial Conduct Authority (FCA) has set out its supervisory strategy for insurance intermediaries in personal and commercial lines, warning of “significant risks of potential harm” within the insurance sector.
