Insurance and COVID-19 – the UK FCA's increasing focus on consumer protection

The focus of the Financial Conduct Authority (FCA) on consumer protection is not new. As one of the three objectives of the FCA, it underpins all of the FCA’s work. In turn, Principles 6 and 7 of the FCA’s Handbook require firms to treat consumers fairly and ensure that they receive the information they need in a way that is 'clear, fair and not misleading'. The health and economic impacts of COVID-19, however, have led the FCA to take more proactive steps to protect consumers.

On 30 October, the FCA published the second instalment of its finalised guidance to the insurance industry, aiming to protect consumers who continue to face financial difficulties due to COVID 19. The FCA’s initial August guidance, which expired on 31 October, was designed to enable firms to act quickly to deliver immediate and temporary support to consumers who hold insurance and premium finance products.

The October guidance recognises that consumers are continuing to feel the impact of COVID-19, in some cases in new ways. It sets out the FCA’s expectations of how firms should support consumers beyond 31 October, whether or not the consumers have been granted a payment deferral or other support under the August guidance. The October guidance came into force on 1 November and will remain in force until the FCA varies or rescinds it.

The central point of the guidance is clear – firms should not cancel insurance policies solely because of missed payments without considering what actions they can take to support consumers. Firms could consider re-assessing the risk profile of the consumer (for example, consumers may not be using their car as much, or are no longer using it for business purposes) or consider whether there are other products they could offer which would better meet the consumer’s needs. Firms should also act in accordance with FCA’s suggested forbearance measures to avoid the need for consumers to cancel their cover. The FCA outlines a number of forbearance measures for consumers that hold premium finance credit regulated agreements, including the deferral of payments, suspending, reducing, waiving or cancelling interest and charges and allowing the consumer reasonable time and opportunity to repay debt.

Whilst this guidance in a number of respects reflects the August guidance, the FCA has gone further in some areas. For example, firms are required to consider whether it would be necessary or appropriate to proactively contact consumers who have missed payments during the pandemic, even if the consumer has not reached out to the firm. 

Although only guidance, the FCA has indicated that the October guidance is potentially relevant to enforcement cases and they may take it into account when considering whether a firm contravenes the FCA’s consumer protection principles. It is clear from the guidance that the FCA is placing the onus on firms to adjust the way they deal with consumers in light of the extraordinary circumstances many of them face.

This is not the only time the FCA has expressed its focus on consumer protection during the last few months. In June the FCA brought a test case to clarify key issues of contractual uncertainty for policyholders with business interruption insurance policies by selecting a representative sample of policy wordings issued by eight insurers. There have been a large number of claims brought under such policies from policyholders whose businesses were affected by COVID-19 with some insurers accepting liability, and some not. 

On 15 September, the High Court found in favour of certain arguments brought forward by the FCA on behalf of policyholders and on other points in favour of the insurers. It held that most of the ‘disease’ clauses in the sample policies provide cover, and certain ‘denial of access’ clauses provide cover (depending on the specific wording and how the business was affected by the government’s response to the pandemic). The case has not yet concluded. Six of the insurers, the FCA and one of the intervening policyholder action groups were granted the right to 'leapfrog' the Court of Appeal and apply directly to the Supreme Court for permission to appeal to certain parts of the High Court’s judgment. A decision from the Supreme Court on permission is awaited.

The impact of COVID-19 has been stark and the FCA expects the insurance industry to act quickly and efficiently to protect consumers in these difficult times. The FCA announced that its October guidance will not be followed by a formal consultation, as it wants to act quickly to ensure consumers are protected. 

No one can predict how long COVID-19 will be with us, but one thing is for sure – the FCA will continue to pursue its consumer protection objective and will expect firms to recognise the particular difficulties consumers face in the current crisis and to adapt how they deal with consumers accordingly.