The Financial Conduct Authority (FCA) case concludes this week (on 30th July) and one of the defendants has said that the case would bring the matter to a close, they would abide by the final rulings. I hope they don’t launch an appeal if they don’t get their own way. Insurers across the globe are paying out.
Welcome back, or if you’re new here contact us and tell us if you want insurance tips, new posts, or details of events and promotions that could help you or your network reduce the risks we are facing in todays’ economy. In this article we explore the challenge of jargon, policies as commodities and 3 things we can all do to prevent a conflict between insurers and those that rely on them.
Who thinks Covid is not infectious?
People are rightly annoyed by some insurance company’s view, that 1, businesses have to provide evidence of actual Covid cases near their premises or 2, insurers intended to exclude pandemics, yet forgot to put the exclusion in their wording. The insurers are using one of these or a variant because they don’t want to pay. Once one started, that became infectious. Some of them went on to say “we can’t afford to pay”. I wasn’t impressed when another indicated that Covid shouldn’t be termed infectious for blah, blah, blah reason. The cover for infectious diseases is described in insurance policy wordings which are legal contracts with the inevitable legal jargon.
The first two insurers views are just unreasonable because I do not know anyone that agrees this is fair. I don’t know how they can declare they cannot afford it, they haven’t even added it up yet and a low percentage of businesses purchased business interruption cover. Why did they not mention in some of their wordings? This is a huge mistake yet catered for by “contra proferentem” which loosely means if it is their mistake, they should pay up. Time spent arguing over jargon that most people would only interpret one way is maddening.
How did it get to this?
Rather than discuss the trial which is happening between 20th and 30th July I can provide some insight on how the trial could be avoided in future, not that it will be needed in the event of another pandemic, because this case will set the precedent for all pandemics. However, lessons can be learned now. We could wait for insurers yet we, as insurance buyers, can try and do things differently.
A lot of the insurance companies stopped offering bespoke cover many years ago, moving towards packaged products, which get treated as commodities. Which is dangerous. When this happens they cover an arbitrary amount, for example gross profit is often covered up to £250,000. When Covid hit a fictitious insurer worked out that they had issued 150,000 policies offering £250,000 cover which adds up to £37.5bn.
However, if they had looked at claims for business interruption they had paid, they would notice that they hadn’t paid out £250,000 per claim, it was more like £20,000, a paltry £50m if everyone claimed at once – like now. This is because losses rarely last the 12 months that insurers provide and not all policyholders generate £250,000 profit. Most claims for loss of profit take account of savings made when businesses close, yet fresh food does go off so there are costs too. There are snakes and ladders on the vast majority of business interruption claims. It is not simple so buying it should be made clearer not easier.
What 3 things can insurance buyers do to help themselves?
Insurers lawyers are busy arguing about technicalities and jargon, using technicalities and jargon. And it was lawyers that wrote the policy wordings they’re arguing about. All of which alienates buyers. The insurance companies allow people to buy products which look right yet do not stand up to much interrogation. There are brokers, like ourselves, that interrogate the products to help businesses make informed decisions. The jargon should still be removed. It would also make claim payments quicker. It only serves to create conflict and we have a language that is rich enough not to need jargon.
It is not the customers that have made incorrect decisions when buying cover. It is insurers who have created the products and distribute them to the wrong buyers. If insurers are going to use the type of language they are using in their defence they should be using it in their distribution. “No”, insurers cry, “that would complicate it and make them think twice”. Yes, says the man on the Clapham Omnibus, that is what should happen!! Businesses should insist:
- on jargon free documents or an explanation of what issues are covered.
- insurance people and documents prioritise telling them what is not covered.
- they have at least 2 clear options to compare.
Always get two options. If you don’t like reading or small print, pay someone else to interpret it for you. There are hundreds of virtual assistants who are capable if a business doesn’t have the talent in-house. Insurance brokers of repute will do this too. Both are preferable to paying a Solicitor to interpret it when it’s too late.
It’s difficult to predict the outcome of the hearing yet insurers reputations are already damaged. Leaving room for real “disruption” in their market place. The Financial Conduct Authority (FCA) case started on 22nd July 2020. They will learn lessons from these discussions with insurers. Implementing them promptly is imperative.