On 3 August 2020, following complaints from policyholders and other stakeholders about insurers making deductions from business interruption (BI) insurance claim payout for some types of Government support given to policyholders, we issued this statement:
Where insurers have accepted liability, they should continue to handle and assess non-damage BI claims promptly and fairly, and to treat their customers fairly in accordance with Principle 6[1].
Assessing whether it is appropriate to make deductions
The insurer will need to assess this for some or all of each type of government support the policyholder received with a case by case assessment. The assessment should consider:
- the exact type and nature of the Government support
- how the policyholder used this support
- the type of policy and its precise terms, including any set methodology for calculating the value of a claim set out under the relevant section of the policy
Some of these factors will be specific to the case and claim. Even where it is appropriate in principle to deduct these amounts, a single, uniform approach to deductions is still unlikely to be appropriate. Insurers are likely to need to consider individually the precise details of the policy, the claim and how the policyholder used the Government support. How Government support is treated for tax purposes may differ from the way it is treated for calculating the loss under a BI policy.
Our expectations of firms
We expect firms to take these matters into account when they calculate non-damage BI claims. We also expect them to reflect these matters appropriately in their communications with policyholders when making settlement offers and reaching settlement on relevant BI claims. We will consider how firms treat their policyholders in this way as part of our usual supervisory activities. We may intervene and take further actions where firms do not appear to be meeting our expectations and treating their customers fairly on these points.
On 18 September 2020, in a Dear CEO letter[2], we referred insurers to this statement. We also clarified that we consider:
- The Government’s treatment of the Small Business, Retail, Hospitality and Leisure or Local Authority Discretionary grants for tax purposes is not a proper basis for insurers to treat these payments as turnover under the policies.
- Insurers could not apply these amounts as savings against fixed business expenses. This is because these amounts are not made for any particular business expense and policyholders will have used the grants in different ways.
We confirmed our expectation that firms explicitly consider the treatment of the various forms of government support at Board level and appropriately document their consideration and conclusions. We told insurers that we would follow up with them individually as appropriate. We also advised that we would continue to consider the appropriateness of any deductions of any other form of Government support when calculating the BI losses.
On 25 September 2020, in discussions between the Association of British Insurers (ABI) and The Economic Secretary to the Treasury, the ABI confirmed that a number of insurers have agreed not to deduct certain grants from Covid-19 claim payments.
Ageas, Allianz, Aviva, Axa XL, Axa, Chubb, Covea, Direct Line Group, Ecclesiastical, Hiscox, NFU Mutual, QBE, RSA and Zurich have agreed not to deduct the following grants:
- Local Authority Grant
- Small Business Grant
- Leisure/Retail/Hospitality grants
- Local Restrictions Support Grant (closed)
- Local Restrictions Support Grant (open)
- Additional Restrictions Grant (ARG) and
- Local Restrictions Support Grant (LRSG (Closed) Addendum)
or their equivalents in Scotland, Wales and Northern Ireland. Our view is that the Scottish Pivotal Enterprise Resilience Fund is an example of an equivalent grant.
Even if your policy is with a different insurer to those listed above, our views about the appropriateness of deducting small business grants still apply.