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Insurance premiums could be refunded after the watchdog ordered firms to make sure their policies are value of money and address what they can no longer deliver.
The Financial Conduct Authority (FCA), the City regulator, said many consumers and businesses could be stuck with policies they cannot use or claim against and that companies should consider pausing or refunding premiums in these cases.
It gave the example of boiler insurers which are currently unable to offer an annual service because of the lockdown or businesses paying for liability insurance when they are currently closed.
A particular focus for the FCA is business interruption insurance, which pays out when businesses are unable to trade, and it is seeking to take several cases to court to provide clarity for policyholders.
Christopher Woolard, the interim chief executive, said he understood that some policies would not cover coronavirus but that in some cases insurers are under an obligation to pay claims.
“For these policies, it is important that claims are assessed and settled quickly,” he added.
“There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.
“Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers.
“It is clear that decisive action is appropriate given the severity of the potential consequences for customers.”
He praised companies which have taken action to support their customers in financial difficulty and called for consistency in the way firms are treating consumers.
Admiral was the first insurer to announce it would give back some premiums to its 4.4 million car and van insurance customers with a £25 refund.
Coronavirus and insurance
The FCA said it expects firms to assess their policies and consider refunding premiums, pausing them or changing the way that the benefits of a product are delivered. Firms will have six months to do this to ensure they can view coronavirus in a “rounded manner”.
The regulator said that for those in financial difficulty it would expect firms to support them.
This could be in the form of payment holidays, waiving cancellation fees or relaxing charges for missed premium payments.
It said those who are facing financial difficulty because of the pandemic should contact their insurer to discuss their options.
Another focus for the FCA was business interruption insurance and it said that, while it accepted that many policies would not cover the outbreak, there was still confusion among customers.
It has written to a “small number of firms” asking them to clarify their position on claims by May 15.
Huw Evans, director general of the Association of British Insurers, said the organisation will work closely with the FCA.
He added: “Although the vast majority of business interruption policies do not cover pandemics and the Government has confirmed it will not seek to retrospectively amend contracts, we support any process that will provide clarity and certainty for the minority of customers who are disputing whether they should be covered.
“For valid claims, leading ABI members have agreed a set of claims handling principles to ensure speedy processing, including interim payments”
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