This briefing considers key features of the Framework and some practical considerations for insurers, now and into the future, as a result of its implementation by the Central Bank of Ireland.
The Central Bank of Ireland (CBI) recently published the 'COVID-19 and Business Interruption Insurance Supervisory Framework' setting out: what it expects from insurers when dealing with claims arising under business interruption (BI) insurance policies as a result of COVID-19; how it intends to engage with insurers and the overall approach to supervision; and, escalation of any issues identified.
What are the CBI's expectations of insurers?
The Framework sets out five expectations of insurers which reflects those outlined in the CBI's industry letter to Chairs and CEOs of life and general insurance firms in March 2020.
1. Insurers are expected to comply with legal and regulatory obligations:
Insurers are expected to adopt a customer first approach to the resolution of BI insurance issues and to act honestly, fairly and professionally in the best interests of customers and with due skill care and diligence. Insurers must analyse actions and decisions relating to the treatment of customers through the lens of their regulatory obligations including under the Consumer Protection Code 2012 and where the CBI identifies "issues of concern in relation to the treatment of customers and/or issues of interpretation of BI insurance policies", the CBI expects insurers to take "immediate" remedial action in line with its communicated expectations.
2. Board of Directors and senior management are expected to be responsible and accountable:
The Board of Directors and senior management have a responsibility for ensuring that issues related to BI insurance policies and COVID-19 related claims are handled in compliance with all legal and regulatory obligations and are expected to co-operate with the CBI in the implementation of the Framework.
3. Insurers are expected to treat the Government communication to close as a direction / mandate / order:
Insurers are expected to treat the Government's communication in March to close businesses as a result of the outbreak of COVID-19 as a Government order/direction/mandate for the purposes of determining the issue of cover.
4. Insurers are expected to interpret unclear policy wording in the way most favourable to the customer:
Where there is doubt in a BI insurance policy as to the meaning of any term, insurers are expected to adopt the interpretation most favourable to the customer. When assessing whether policy wording is unclear, insurers are expected to:
– review customer communications including queries, complaints and claims to assist in assessing what customers reasonably understood;
– assess whether there were conflicting communications to customers from staff and/or any intermediaries dealing with customers in relation to whether the BI insurance policy was responsive to COVID-19 related claims;
– ascertain what understanding staff had of the meaning of the relevant policy wording in respect of COVID-19 related claims and whether this changed over time; and
– consider any internal discussions and/or debate and/or disagreements and/or concerns in relation to the interpretation of the relevant policy wording.
5. Insurers are expected to handle claims and legal actions effectively and efficiently:
Insurers are expected to handle claims effectively and properly and, where appropriate, to offer assistance to customers in making claims including by alerting customers to policy terms and conditions that may be to their benefit. Insurers are expected to ensure that any claim settlement offer is fair, takes into account all relevant factors having regard to the terms of the policy and any representations made to the customer and represents the best estimate of the customer's reasonable entitlement under the policy.
Where a customer has commenced litigation against an insurer and together they agree that the case has the potential to act as a "test case" for the determination of issues in relation to BI insurance policies for a wider group of customers, insurers are expected to consider how the issues in dispute can be narrowed to ensure that the litigation can proceed expeditiously and cost effectively. Where a court interprets a BI insurance policy in favour of the insurer, the CBI expects that the insurer will agree to pay the reasonable costs of the customer and will refrain from seeking its costs from the customer. Where a legal action has been concluded, insurers are required to seek to ascertain whether the final outcome might impact on other groups of customers and, if so, to take any necessary remedial action.
It is no surprise that the CBI expects insurers to comply with all legal and regulatory obligations or expects that the Board of Directors and senior management will be accountable in this regard. Similarly, the CBI's expectation that insurers treat the Government communication to close businesses as a direction/mandate/order reflects the position adopted in the CBI's industry letter in March last. The expectation that unclear wording in policies be interpreted in the customer's favour is in line with the general legal principle of contra proferentum (i.e. that an unclear term in a contract be interpreted against the party that proposed or drafted it).
Other aspects of the CBI's stated expectations are novel in this context and may create difficulties in implementation. For example, in assessing whether policy wording is unclear, the Framework obliges insurers to take a broad range of factors into account including ascertaining what understanding staff had of the wording and whether this changed over time and any internal discussion in relation to the interpretation of the relevant policy wording. In addition, the Framework indicates that test legal cases should override the general rule that 'costs follow the event' (i.e. the winner gets its costs) and instead, those costs should be borne by the insurer even where it wins.
How is the CBI engaging with insurers?
The Framework is being implemented in four modules which are ongoing and being run concurrently.
Module 1 involves the CBI using its powers to gather information from insurers in relation to the processing and handling of claims; the calculation of losses under BI insurance policies; ongoing and concluded legal actions; and specific supervisory concerns.
Module 2 involves the analysis and categorisation by the CBI of this information focusing on three main issues: cover (whether or not there is cover); causation (whether the COVID-19 related interference and/or interruption caused the relevant loss); and quantum (of compensation payment) and claims handling. The CBI's analysis will focus primarily on policy wording that provides cover for interruption or interference to a business where there is no physical damage and:
- there is a notifiable and/or infectious and/or contagious disease at or within a certain radius or within the vicinity of the customer's premises; or
- some form of public authority, including the Government, acts or directs or orders or takes some other action that prevents and/or restricts and/or interferes with and/or interrupts access to and/or use of the customer's premises.
The first type of wording above will be before the High Court (Commercial Court) in October 2020 when the Court hears the case brought by a number of pub-owners against FBD Insurance. As to the second type, as already noted above, the CBI has made very clear that it expects insurers to treat the Government communication to close businesses as a direction/order/mandate to do so.
What will happen next?
Module 3 of the Framework involves an assessment of what supervisory engagement and/or escalation is warranted in respect of any issues of concern identified by the CBI through the exercises outlined above. The Framework does not say what powers will be exercised by the CBI where it has identified issues of concern, which will depend on the facts and circumstances of each case, but does say that the CBI "will continue to examine all possible options within the full suite of our powers and .. will intervene where appropriate".
Module 4 anticipates that where a relevant legal action has been concluded, insurers will carry out impact assessment to assess whether the outcome affects similar groups of customers and if so, is expected to take steps to ensure that the outcome is applied to those customers or explain to the CBI why such action may not be carried out.
What might insurers expect from the Framework?
The Framework has a number of parallels with the framework put in place by the CBI for the 'Tracker Mortgage Examination' (TME) which commenced in 2015.The TME required financial institutions to review and redress certain tracker mortgage customers and has led to a number of subsequent investigations by the CBI under its Administrative Sanctions Procedure.
- Customer Focus: The Framework requires a broader and more customer focused approach to policy interpretation and resolution of issues arising than, for example, a Court would expect. Engagement with the CBI will be critical in ensuring that insurers understand and take the right approach to meeting its expectations.
- Information Requests: Insurers should expect to receive information requests from the CBI and be prepared to deal with them including by mapping their data landscape, collating readily available sources of information and pre-empting access issues which may arise. They should also consider how potentially privileged material will be treated.
- Certification: Statutory requests for information can involve the review and production of significant volumes of data, including hard and soft copy data and telephone records, and will require certification by a senior officer as to the accuracy and completeness of the response.
- Process: The CBI may query and challenge the process as well as the outcome. Insurers should carefully consider and document the processes and methodologies put in place to ensure effective implementation and governance of its compliance with the Framework. Insurers should form an internal working or steering group to manage overall consideration of the issues arising from the Framework.
- Impact Assessment: The CBI may also query and / or challenge how impact assessments have been conducted by insurers and how remedial steps for similarly affected customers have been determined and implemented.
- Remediation Timelines: Insurers should be prepared to work to expedited timeframes in taking remediation steps to address requirements communicated by the CBI. As mentioned above, the CBI expects insurers to take "immediate" remedial action in line with its communicated expectations which may involve more expedited timeframes than, for example, apply to current processes for the handling of complaints or errors in the normal course of business.
- CBI Powers: Where the CBI has identified issues of concern and / or potential breaches, it has a suite of powers that may be exercised including conducting on-site inspections and interviews, issuing statutory requests for information and the commencement of formal ASP investigations which may lead to a Statutory Inquiry into the conduct of an insurer and/or individuals working for an insurer.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.