Christopher Woolard, interim chief executive at the FCA, has today sent a stark “Dear CEO” letter to UK insurers titled “Insuring SMEs: Business Interruption”.


By way of a reminder, the FCA uses “Dear CEO” letters as a tactical regulatory device to set out its expectations of firms’ conduct in relation to specific areas or products.

On 19 March, the FCA set out its general market conduct expectations for insurers following the Covid-19 pandemic. The purpose of today’s letter is to focus specifically on insurer’s conduct in relation to business interruption (“BI”) insurance.

The FCA acknowledges that many BI policies will not cover claims related to pandemics and therefore many insurers would have no obligation to pay out in relation to the Covid-19 pandemic: “Whilst this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances”.

But the FCA then draws a very clear distinction in the circumstances where it is clear that the insurer has an obligation to pay out under a policy. The FCA says:

“…it is important that claims are assessed and settled quickly. A key objective of the FCA is to ensure that financial pressures on policyholders are not exacerbated by slow payment, rather such claims should be paid as soon as possible. This is consistent with the wider objective of the authorities to support business and consumers in the current crisis.”

The FCA goes on to say that if there are reasonable grounds to pay on part of the claim but not the entire claim then the regulator wishes for insurers to make interim claims payments. But if insurers disagrees with doing so, then the FCA requires them to send to it the grounds for reaching that decision “including how you believe it represents a fairer outcome for consumers”.  There then follows a thinly veiled warning to firms: “Your firm’s decision is likely to help inform our assessment of its culture.”

Interestingly, the FCA turns to the issue of disputed BI insurance payments and anticipated claims’ battles between insureds and insurers. The regulator notes that where a policyholder is an SME with an annual turnover of below £6.5 million, and fewer than 50 employees, or an annual balance sheet below £5million, a complaint is likely to fall within the Financial Ombudsman Service’s (“FOS”) jurisdiction. Clearly both the FCA and the FOS are anticipating a high volume of complaints by SMEs concerning disputes over insurers’ decisions on BI claims as the FCA goes on:

“In due course, the ombudsman will share details of the approach it will be taking to deciding complaints about business interruptions insurance, most likely through a serious of lead cases. In the meantime, the ombudsman is working closely with financial businesses and their respective organisations to ensure they have a good understanding of the type of complains it might receive”

Finally, the FCA announces the establishment of a small business unit to coordinate the activities of the regulator across small business issues, in terms of ensuring regulated firms are supported through the challenges posed by the current crisis, gathering intelligence about the treatment of small business by firms and ensuring a coordinated response by the FCA to an issues identified (also coordinating closely with the FOS).