On 6 May, the Autorité de contrôle prudentiel et de résolution (ACPR) – the French Supervisory Authority – initiated a thematic survey on Business Interruption coverage due to the pandemic crisis and its consequences : “ACPR has decided to draw up an inventory of the main contracts distributed on the French market as part of its prudential supervision and monitoring of commercial practices”, it said in a statement.
The French Supervisory Authority for Insurance surveyed 21 authorised insurance companies in France, representing “a representative sample of the bulk of the business interruption cover”.
On May 23rd made public the findings of its investigation into business interruption guarantees : Business interruption coverage is underwritten in France by approximately one company out of two, of which one out of five has taken out business interruption coverage without damage. In total, the business interruption market represents €354 million in premiums in 2019, out of a total of €5 billion for property damage to professionals, i.e. nearly 1.13 million policyholders.
Furthermore, Covid-19 is, for 93.3% of policyholders, not covered by their insurance policy, either because they only cover business interruption in the event of direct material damage (fire, water damage), or “more rarely” because insurance companies have explicitly excluded the pandemic from their contracts.
On the other hand, 2.6% of policyholders can claim an indemnity for Covid-19. This is particularly the case when the contract covers BI losses whatever the cause and does not include any exclusion of the pandemic risk.
A CALL FOR VIGILANCE
The ACPR also calls on insurers to be vigilant : “The pandemic has shown that, despite the recommendations made by the ACPR over the past four years, the quality of insurers’ information systems is still too uneven. Organizations must ensure that they have a precise vision of the content of the guarantees that their policyholders benefit from, including for older generations of contracts or when distribution is carried out by intermediaries” stresses the supervisor.
The ACPR thus identified doubts about the application of policy guarantees for 4% of the policyholders : “In this case, only a judge’s interpretation would remove any uncertainty if the insurers concerned do not interpret the contract in favour of the insured”, it points out. ACPR therefore invites insurers “to review the wording of all ambiguous contractual clauses in the future and to clarify the general architecture of their policies in order to clearly inform policyholders of the exact scope of their coverage”.
SIMILAR STATISTICS IN THE UNITED KINGDOM
This thematic survey can be compared to a Financial Conduct Authority (FCA) recent statement – the British Supervisory Authority – according to Chris Woolard, interim CEO of the FCA, around 90 percent of BI policies taken out by businesses do not cover pandemic risks.
Furthermore, the FCA has taken a unique initiative in Europe, as it intends to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims. The Court will have to determine what was the exact cause of the losses to business, and whether they were sustained directly as a result of the incidence of Covid-19, or to wider conditions triggered by the pandemic, including lockdown, self-isolation and social distancing.
The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by the court. In respect of non-parties, the result will form persuasive guidance for the interpretation of similar policy wordings and claims.
The FCA said today the court hearing would take place between 20 – 23 July and 27 – 30 July.