A Financial Conduct Authority review of business interruption claims handling has applauded insurers for quickly paying out interim payments, reallocating resources quickly and proactively communicating with policyholders to help them with claims, following last year’s test case judgment handed down by the Supreme Court.

At the same time, the watchdog's report, published today, raised concerns over how firms handled business interruption claims from vulnerable customers; record-keeping of policy wordings; and identifying where customers experienced unnecessary delays.

Sheldon Mills, executive director of consumers and competition, said: “We have been working alongside insurers to ensure that claims are settled quickly, but we are not complacent, and today’s report is clear that, while we have observed good practice, there are lessons to be learned for the handling of all claims.

“As consumers and businesses across the country are affected by inflationary pressures and the rising cost of living, it is crucial that insurers are handling claims promptly and treating customer fairly.”

Welcoming the FCA's review, the Chartered Insurance Institute said the report was a timely reminder that insurance is not a commoditised product, but a complex service.

“It is encouraging to hear that insurers did many things well in their response to business interruption claims, including dedicating resource to the issue at an early stage, developing proactive communications for customers and making interim payments while only requiring basic information,” commented Matthew Connell, director of policy and public affairs at the CII. “The FCA report is right to focus on the speed in which claims were made in certain circumstances. Our latest research with SMEs on business interruption insurance, conducted in January and July this year as part of our Public Trust Index, shows that two key areas in which insurers can do most to improve consumer outcomes are ‘repairs or replacement items are completed/delivered at a time to suit me’ and ‘my claim is settled quickly’.

“We see many insurers using technology, such as claims portals, to address these issues, and, just as importantly, insurers are increasingly giving customer facing staff the autonomy to make decisions that will allow customers to cope with the immediate practical and emotional challenges of dealing with unexpected circumstances.

“The FCA’s report is an important reminder that insurance is not a commoditised product, but is a complex service delivered by people with a wide range of skills from risk management to effective communications.”

The latest BI claims data shows that £1.5bn has now been paid out by insurers to over 36,000 small businesses as a direct result of the test case.

Good practice in claims handling (Source: Financial Conduct Authority)

The FCA’s review identified good practice by insurance firms, putting customers at the heart of the claims process. This included:

• Firms were quick to move resources to priority business areas and employed technical external expertise where necessary.

• Interim payments were issued using basic information received from policy holders, with more detailed assessments of further information to determine full and final settlements.

• A range of channels were made available for customers to contact firms, such as greater telephone access and web-based forms.

• Firms issued proactive communications encouraging policyholders to provide information to progress their claims.

The review also identified key areas where firms did not meet FCA expectations regarding fair treatment of customers. This included:

• Firms and their partners did not produce clear and robust conduct Management Information, which affected their ability to identify and address delays in the claims process.

• Some firms did not have records of policy wordings that were easily accessible for claims handlers, which resulted in delays for customers.

• Firms did not adequately identify vulnerable customers or took an inconsistent approach in dealing with the needs of vulnerable customers.

• Quality Assurance reviews were too focused on the financial outcome of the claim rather than the full customer experience and failed to identify where customer experienced unreasonable delays.

• Customer communications were not always tailored to the recipient.

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