Recent ruling forces UK insurers to act swiftly
The COVID-19 pandemic has created a great deal of concern and uncertainty for industries across the globe, and the UK insurance sector has certainly seen its share of fallout from this crisis.
A wide range of insurance policies have been affected, ranging from event cancellation, life assurance, health insurance, travel insurance and business interruption insurance, through to directors’ and officers’ insurance, and many other insurance types in-between.
Indeed, it has been estimated that the global insurance industry could be facing up to $100bn in policy claims as a direct result of the Pandemic 1.
Undoubtedly one of the most significant recent developments for the UK insurance industry was the Supreme Court’s judgment in the FCA’s business interruption insurance test case.
Their ruling completed the legal process for impacted policies and means that many thousands of small and medium sized businesses whose policies are covered by this judgement should now have their claims for Coronavirus-related business interruption losses paid 2.
During the height of the first lockdown in the UK, many impacted small businesses turned to their insurance company in the hope of pay-outs for various claims that they expected would be covered as a result of the pandemic.
Many such claims however were subsequently rejected by insurers on the basis that the claimants required policies which specifically refer to contagious, communicable, or notifiable diseases 3.
As COVID-19 was not a known disease when the vast majority of these claimants originally took out these business interruption policies, insurers initially decided that claims of this nature should not be covered.
By the end of March 2020, many companies across the UK had subsequently renewed their business insurance policies. As part of this renewal process, many insurers had subsequently changed the terms of these policies to clarify that the Covid-19 pandemic was not in fact covered for future claims4.
Understandably, insurers have been modelling the potential cost of epidemics ever since the SARS and Swine Flu outbreaks, but Covid-19 is the first truly global virus outbreak to become a pandemic in living memory, which puts these preparations to the test 5.
Prior to the recent Supreme Court ruling, UK insurers had argued that most policies did not cover Covid-19 and that they were processing and paying out for all valid claims as quickly as they could.
With mounting tensions between policyholders and insurers, the FCA stepped in to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible, as well as putting forward policyholders’ arguments to ensure transparency and fairness in wider public interest.
Within this process a total of 370,000 policyholders were identified as holding 700 types of policies issued by 60 UK insurers that may be affected by the outcome of a test case which was initially put before the High Court.
Last September, The High Court’s judgment resolved most of the key issues involved in the case but, crucially, they were unable to reach an ultimate final agreement on behalf of all parties. Subsequently, the insurers and the FCA prepared appeals which would be heard directly by the Supreme Court (without going to the Court of Appeal first)6.
As a result, the outcome of the Supreme Court ruling on 15 January 2021 will mean that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE do in fact provide cover.
This outcome has significant ramifications for UK insurance companies. Not only will it mean that many policyholders will have valid claims which may have been previously rejected. But many thousands more policyholders will now be encouraged to make a claim and some pay-outs could also be higher than initially anticipated. With reputational damage at risk, plus legal and regulatory pressures, the time for insurers to act is now. The FCA has urged insurers to act now.
They have made it abundantly clear that insurers will need to act swiftly to pay-out claims to those businesses legitimately affected, making interim payments wherever possible.
They will also need to ensure that they contact all applicable policyholders quickly, to explain the next steps and discuss any concerns they may have. With over 370,00 potential claims to address, UK insurers will have to move swiftly to build their communication, case handling, and operational flow capabilities.
The demand for experienced claims and case handlers will be high
Affected insurance companies will unquestionably need to be well-staffed with experienced teams ready to process and manage the substantial number of small-business claims heading their way. Heads of claims and case-handler departments will need to ensure that their internal teams are adequately prepared for mass remediation actions that will need to take place effectively and efficiently.
Contingent teams are already being sourced and will be coming on-board over the coming weeks for insurance firms across the country to ensure these claims are being processed and paid-out in a prompt manner.
The FCA has openly stated their belief that this money could be a lifeline for many small businesses in the UK who are struggling to continue trading and paying their staff. As a result, they will be watching closely in the coming weeks and months to ensure that insurance companies are adhering to the outcome of this legal process.
Why choose Momenta?
Momenta have vast experience in deploying and setting up remediation projects on behalf of our clients. As an example, in conjunction with one of the big 4 professional services firms, Momenta was required to supply 1,100 experienced contractors to undertake case handling, quality checking and team leading roles within a pre-assembled project team.
Operating to rigorous standards, Momenta began deployment of contractors in July 2011 following a carefully designed intake plan. Through weekly intakes of 50+, the target number for each role was achieved on time in mid- December 2011.
Momenta also deployed a small, dedicated team drawn from its own internal employed staff to assist the project operations team in managing the contractual queries that inevitably arise in a project of this size.
Through the 5 years of our engagement on the project, we worked closely with the incumbent, operational project management team, initially the big 4 professional services firm and latterly the client’s managed service supplier .
With a backdrop of two location changes over the project lifespan, and through numerous operational stages – typically driven by changes in case type or spikes in case flow – the Momenta team consistently met the client’s stringent productivity and quality targets. The project finally closed after 61 months of successful operation.
Momenta currently have 6000 associates with insurance experience who can be utilised in an insurance remediation project.
Teams required will largely consist of Momenta’s standard remediation teams:
– Data Gatherer: Research, gather and present data relevant to the file review/remediation process using in-house systems to log and allocate cases for review with allocated Case Handler.
– Case Handler: Research, gather and present data relevant to the customer complaint using in-house systems to log and allocate cases for review.
– Team Leader: Leading a team to fulfil Non-BAU requirements within a remediation function of assessing, reviewing and gathering necessary case file information and working them through the remediation process.
– Quality Assurer: Perform ongoing QA reviews of the Compliance functions to ensure controls/standards are met.
– Ops Manager: Contribute operations information and recommendations to strategic plans and reviews; prepare and complete action plans; implement production, productivity, quality and customer-service standards; resolve problems; complete audits.
–Underwriter: Understand risk selection, coverage negotiation, and pricing adequacy on business, all in accordance with designated underwriting authorities and company guidelines. They will be able to provide industry regulatory support and understanding to the business to strengthen future frameworks.
– Underwriting Assistant: Supporting the underwriters with administrating and logging all data, by support in the delivery of an effective administration service, providing pre-underwriting and rating support, ensuring accurate data entry and management information to senior management and underwriters.
