UK: COVID-19 UK: Insurance Regulation In The United Kingdom

The Covid-19 pandemic poses a unique challenge to the insurance industry and places it firmly in the public spotlight. In response, regulators have issued measures and guidance to assist (re)insurers in navigating these challenges.

A particular area of focus for the UK regulators has been the conduct of firms dealing with customers in connection with the crisis and need to treat customers fairly during this period has been emphasised. In addition, the importance of clear communications with customers has been highlighted with policyholders likely to be concerned or unclear about the terms of their cover.

The UK regulators have also sought to relax some of the regulatory burdens on (re)insurers to take into account the difficulties of remote working and staff absences. This has included postponing certain regulatory actions and deadlines as well as delaying some planned operational changes. However, the regulators have stressed that (re)insurers must act prudently to preserve their capital position in order to continue to service customers.

Claims and cover

The FCA has asked insurers to ensure they consider the needs of their customers carefully and to show flexibility in their treatment of them at this time. For example, in respect of motor and home insurance, it is expected that insurers do not reject claims because of a temporary change in how a customer uses their vehicle or home.

However, the FCA is not seeking to pressure insurers into providing cover which is clearly excluded or outside the scope of policies. This issue has been particularly pertinent in relation to business interruption insurance with many policyholders only purchasing basic cover.

When considering product suspensions, insurers should bear in mind that treating customers fairly may mean renewing a product where a customer is relying on it, even if it might otherwise be suspended.

Where an insurer is seeking to change policy wording, mid-term or at renewal, to exclude Covid-19 it needs to be made very clear to customers, in a prominent position, that the policy has changed and that Covid-19 has been excluded.

Lloyd's is temporarily increasing the thresholds at which at which a claim becomes a "complex claim" resulting in more claims being able to be handled by the lead (re)insurer only.

Governance and operations

Whilst (re)insurers are required to ensure the responsibility for Covid-19 and business continuity is properly allocated, it need not be a single individual and firms have the freedom to determine which senior managers are appropriate and which best enables them to manage the risks they face.

The FCA has reinforced that it expects firms to have robust systems and controls in place to continue to operate effectively. Firms should act fairly, honestly and professionally in accordance with the best interests of their customers with all communications being clear and not misleading.

A number of regulatory reporting deadlines have been extended. In addition to this, for small or medium-size businesses, the administrative fee for late returns has been waived until 20 June 2020.

Lloyd's has reviewed its regular market returns and has published a document setting out which returns can be delayed, stood down and/or completed with less information.

EIOPA has stated that insurers should be ready to implement "necessary measures in order to ensure business continuity" and that "competent authorities should accept an 8 week delay in the submission of the Regular Supervisory Report".

Capital and solvency

The PRA has directed (re)insurers to pay close attention to the need to protect policyholders and maintain safety and soundness before making any distributions to shareholders. The PRA has emphasised (re)insurers' important role in society and the economy both for policyholders and investors. However, it has been confirmed that capital buffers may be used as intended to support the businesses during periods of stress.

EIOPA has reiterated the need for insurers to take steps to preserve their capital position and indicated that where insurers fail to comply with their regulatory capital requirements, it is prepared to coordinate with the relevant National Authorities to use regulatory tools.

The PRA has stated that it will accept applications from firms to recalculate transitional measures on technical provisions relief. In order to do this a firm will need to demonstrate that a material change in their risk profile has occurred.

EIOPA has additionally stated that it considers the pandemic a "major development" and therefore (re)insurers must update their Solvency and Financial Condition Reports to explain the impact of on their year-end position.

Additional considerations

(Re)insurers have been reminded by the UK regulators that other threats such as cybersecurity  have not disappeared and that changes to the way their businesses operate may increase operational risks which will need to be adequately managed.

It is unclear whether the timetable for Brexit and the planned end of the transition period on 31 December 2020 will be impacted by Covid-19. However, the UK Government has maintains it will continue as planned.