The Regulatory Impact of Covid-19 on Insurance Part 1

The Financial Conduct Authority (FCA) is scaling back, planned work is being put on hold and the timing of further work on General Insurance (GI) Pricing Practices is under review. However, this doesn’t mean there is a lack of regulatory activity, far from it! The regulatory impact of Covid-19 is just getting started and there’s already a lot to keep track of.

The main regulatory considerations for UK insurance firms 

Operational Resilience

The FCA already expected firms to have contingency plans in place and it is working with the Bank of England to review those plans at a range of firms.

Covid-19 has brought operational resilience to the forefront. There is a need to ‘digitalise’ insurance and Covid-19 could be the push that brings advances where the industry has typically lagged behind. The regulators have no objections to different working arrangements for staff as long as firms can continue to meet the required standards and have systems and controls in place to maintain regulatory compliance.

The focus on operational resilience since Covid-19 remains pertinent in relation to third party suppliers, the use of data and cyber concerns.

Senior Managers

Senior Management Functions (SMF) - There is no need to designate a single SMF responsible for all aspects of your response to coronavirus. A SMF24 (Chief Operations) could already have responsibilities for business continuity, information security and outsourcing, and so is largely expected to manage the impact of Covid-19. Other aspects of your response could sit with different SMFs.

For the identification of key workers, the FCA recommends that the SMF1 (Chief Executive) takes responsibility for arrangements.

Changes to Senior Managers and Responsibilities - There is greater flexibility around governance arrangements for firms directly affected by Covid-19. For ‘significant changes’ to a SMF’s responsibilities the regulators understand that it may take longer than usual to submit revised Statements of Responsibilities, so long as it is done “as soon as reasonably practicable”.

If a mandatory SMF is absent, the firm must appoint an individual to continue performing their role. For temporary or unforeseen cover, individuals can perform SMFs without approval for up to 12 weeks (the ’12-week rule’).

Normally ‘Prescribed Responsibilities’ (PRs) should be reallocated to other SMFs until a permanent replacement is found. If this is not possible due to Covid-19, PRs can be temporarily allocated to someone acting as a SMF under the 12-week rule. They will not have a Statement of Responsibilities and so recordkeeping of their temporary PRs along with notification to the relevant Supervisor, is essential.

Furlough - It is permissible to furlough SMFs if required, although mandatory SMFs should only be furloughed as a last resort. There is no need to submit a Form C or a Form J because the furloughed SMF retains their approval. The firm will still need to comply with requirements for fitness and propriety and the allocation of PRs, and Regulatory Supervisors need to be advised of the furlough.

Certification - Certification policies and processes can be adjusted to allow you to conduct these remotely. A firm must take reasonable steps to properly complete annual certifications of employees that are due to expire.


The FCA wants firms to focus on consumers during this period. It stressed the importance of keeping individuals’ circumstances in mind and it welcomes initiatives that go beyond usual practices to support customers.

As always, firms should be acting honestly, fairly and professionally in accordance with the best interests of their customers. All communications should be clear, fair and not misleading.

There is likely to be surge in complaints, in particular, around declined claims and cover limits. Firms should still deal with complaints promptly. Again, if they are unable to do so within eight weeks they should inform the FCA. The Financial Ombudsman Service has online pages for both consumers and businesses on its approach to travel, business interruption and wedding insurance complaints:

Any ambiguity in the policy wording about the extent of cover should be interpreted in favour of the consumer.

Product Suspension and Renewals

Firms may decide to suspend product offerings or make changes to existing products at renewal. When doing this, they must consider the needs of customers through:

  • Reliance on renewal for continuity of cover (taking into account any vulnerabilities)
  • Clearly explaining and communicating policy coverage and exclusions (and changes)
  • Considering any exceptional cases of customer need 
  • Offering any alternative products that are in the customer’s best interest and meet their demands and needs

Mid-Term Adjustments

To vary any contractual terms, firms need to consider:

  • Whether the contract provides for the type of change
  • If the terms are fair and transparent under the Consumer Rights Act 2015 (or the Unfair Terms in Consumer Contracts Regulations 1999, as appropriate)
  • If the term is being applied properly in accordance with the contact (e.g. notice periods)
  • Relevant laws and compliance with any other relevant FCA rules

Product Specific Considerations

Travel - Communicating exclusions clearly and being fair when circumstances  changed since the customer purchased insurance or booked a trip, where they had a reasonable expectation that cover would continue. The FCA will delay the implementation of signposting rules for travel insurers.

Motor and Home - Flexibility around customers’ temporary changes in how they use their vehicle and home address. For motor insurance, this could involve being lenient on individuals who are unable to have an MOT, considering the Government’s extension of six months for MOTs due to expire on or after 30 March 2020.

Private Medical - customers due to receive treatment may be impacted by private hospitals assisting the NHS. The postponement of non-urgent care should be communicated effectively, timely and compassionately to consumers.

Business Interruption – most basic policies do not cover pandemics and there is no obligation to pay out. However, where there is a clear obligation to pay, claims should be assessed and settled quickly. If there are reasonable grounds to pay part of claim but not the full amount, an interim payment should be made.

Financials and Reporting

The Prudential Regulation Authority (PRA) welcomed the decision from some firms to pause dividends having previously stated that Boards should pay close attention to protecting policyholders and maintaining safety and soundness. The European Insurance and Occupational Pensions Authority (EIOPA) also urged insurers to temporarily suspend discretionary dividends and share buy backs aimed at remunerating shareholders.

The FCA has permitted an extra two months for firms to publish their audited financial statements. Noting that Market Abuse Regulation disclosure obligations still apply. Likewise, the PRA has allowed up to eight weeks delay for some regulatory reporting.

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