UK: Insurance Law Updated To Reflect New Risks From Terrorism (Pinsent Masons Insurance Briefing: 5 February 2019)

Last Updated: 7 February 2019
Article by Nicholas Bradley, Alexis Roberts and Colin Read

Latest fortnightly round-up of insurance, legal and business developments with analysis and commentary from the insurance team at Pinsent Masons.

The main topics we're focusing on this week are:

Insurance law updated to reflect new risks from terrorism

ANALYSIS (Nick Bradley): The changing nature and scale of terrorist attacks has prompted a speedy and welcome response from the UK government and insurance industry, with a series of steps to address the impact such attacks can have on businesses. Changes have included the mutualisation of new risks by a trade body; the extension of cover through new legislation, and a reinsurance scheme's response to developments in the open market. The Counter Terrorism and Border Security Bill recently passed through its third reading in the UK parliament, but is still awaiting royal assent. The Bill has been criticised by the Law Society and human rights groups amongst others in relation to the new police powers that the legislation will provide, including in relation to detention and interview of people suspected of carrying out terrorism offences. For insurers and businesses, section 20 of the Bill is relevant. That section would amend the Reinsurance (Acts of Terrorism) Act 1993 so that Pool Re can extend its business interruption cover to include losses that are not contingent on physical damage to property. Read more...

Insurers face new reporting duties on value measures data

Insurers in the UK are to be required to publish more data about the value and quality of the products they sell in a move designed to reduce the sale of unsuitable products to consumers. The proposals, which the FCA has opened to consultation until 30 April, builds on findings from the regulator's 2014 market study on general insurance (GI) add-ons where it found that too many consumers were purchasing poor value, unnecessary products. The FCA subsequently consulted on three potential methods for calculating the relative value of these products, in order to encourage competition between firms. Insurance law expert Jonathan Cavill of Pinsent Masons said: "The FCA's consultation on the submission of value measures has been a long time coming, since its discussion paper in 2015. The FCA has for some time attempted to define a suitable metric for the value of an insurance product and struggled to do so. The original value metric of a 'claims ratio' has been rejected because firms have differing practices; it involves the sharing of commercially sensitive data, and it does not assess the quality of the product and cannot capture non-claim value in a product. The FCA also rejected 'peace of mind', 'customer service' and 'DEFAQTO' ratings." Read more...

Insurers seek clarity on coverage for GDPR fines

Insurers have called for clarity from global policymakers about the extent to which they can provide coverage for regulatory fines and penalties, such as those issued for breaches of the EU's General Data Protection Regulation (GDPR). The Global Federation of Insurance Associations (GFIA) has written to the Organisation for Economic Cooperation and Development (OECD) to offer its "proactive and meaningful participation" in the OECD's new cyber insurance project, which is being led by the organisation's Insurance and Private Pensions Committee (IPPC). "The insurability of fines and penalties has remained a grey area for some time," said insurance litigation expert Chamika Hand of Pinsent Masons "Whilst some regulatory bodies, such as the FCA, have made clear that their penalties cannot be covered by insurance, this is not the case for the ICO. This has led to insurers being forced to deal with this issue on a case by case basis, which is unsatisfactory for both the insured and the insurer. Any assistance that can be provided by policymakers on this issue will greatly assist the market in being able to assess risk and set premiums at appropriate levels." Read more...

Financial ombudsman reveals huge rise in caseload

The Financial Ombudsman Service (FOS) has experienced a significant rise in the number of cases it is handling, its chief executive has told a House of Commons committee. Giving evidence to the Treasury Select Committee for its inquiry into the FOS last week, chief executive Caroline Wayman said consumers were waiting longer for decisions on cases referred to the service than before it was overhauled in 2016. Regulatory compliance expert Tom McDonnell of Pinsent Masons said the number of cases being handled by the FOS was likely to continue rising. "Consumer awareness of the FOS has been raised significantly in recent years through a number of high-profile issues and upcoming changes to the FOS are only going to increase its remit and its workload. An update on the FOS award limit consultation is expected in early spring, but if it is approved we consider it is inevitable that this will serve to boost FOS complaint numbers." Read more...

Global ransomware attack could leave $166bn 'insurance gap'

Businesses around the world could be exposed to losses totalling $166 billion in the event of a major ransomware attack, and the cost to insurers of paying out on claims covered by cyber insurance policies could exceed what the total value of the premiums they collect from those policyholders, according to a new report. "Unless properly protected and segregated, back-up systems are susceptible to ransomware attacks, leading to increased, and avoidable, business interruption losses," cyber risk expert Seaton Gordon of Pinsent Masons said. "Ransomware presents particular risks to legacy supervisory control and data acquisition (SCADA) systems in the industrial sector, and to 'patchwork' IT systems that are made up of many different pieces of software, particularly common following a merger of two companies, which may not mesh seamlessly." Read more...

FCA proposes exempting legal heads from senior managers regime

The FCA has proposed to exempt heads of legal at regulated firms from the requirement to be approved as a senior manager under the Senior Managers and Certification Regime (SMCR) in response to concerns that doing so would conflict with legal privilege rules. The announcement is one of several proposed amendments and enhancements to the SMCR set out in a new FCA consultation paper. The FCA is seeking views on its proposed changes by 23 April 2019. Financial regulation expert David Heffron of Pinsent Masons said that the proposal would be welcomed by firms' general counsel and heads of legal. "Many in-house lawyers were concerned that as senior managers, to avoid personal liability for regulatory issues arising within the legal team, they would have to disclose legally privileged advice to regulators," he said. "This would have created a conflict between their obligations to the FCA and the Prudential Regulation Authority (PRA), and their professional obligations as solicitors." Read more...

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