On 5 August 2020, the Central Bank of Ireland (CBI) issued its supervisory framework (the "Framework"), setting out its approach to dealing with the issue of business interruption insurance cover for losses arising from the outbreak of Covid-19 in Ireland.
The extent to which, if at all, a company can rely on any business interruption insurance cover it may have in place in order to claim for losses arising from Covid-19 is, in principle, a contractual matter between the individual business and their insurance provider. As the CBI notes in the Framework, it has no statutory role in dealing with individual customer complaints. Individual customers who are dissatisfied with the approach of their insurer can, for example, take a complaint to the Financial Services and Pensions Ombudsman (FSPO) or commence litigation.
On the other hand, the Central Bank states that it "has no tolerance for systemic consumer or customer harm to go unresolved".
The CBI recognises that many insurance policies clearly do not provide insurance cover for Covid-19 related business interruption losses, in which case no regulatory issue should arise. Its concern is with the approach of regulated insurance companies to their policies that either clearly provide such cover or where a "strong or reasonable argument" could be made that they do so.
The Framework updates and builds on the "Dear Chairperson/CEO" letter that the CBI sent to insurance businesses on 27 March 2020, in which it set out its expectations of the businesses in relation to this matter.
- The CBI has emphasised that it expects insurance companies to take a "customer first" approach to the resolution of any of the relevant issues. Where, for example, there is a doubt about the interpretation of a term in an insurance policy, "the interpretation most favourable to the customer should prevail".
- The CBI has a clear aim to ensure that insurance companies apply the beneficial impact of any resolution of an individual complaint to all similarly affected customers. Accordingly:
- If an insurance company reaches a resolution with a customer, in favour of the customer (whether or not on the basis of legal action), the insurance company is required to carry out an "impact assessment" on the potential wider impacts and apply the beneficial impact of the resolution to all customers in a similar situation.
- Where an insurance company does not provide insurance cover in circumstances in which, in the CBI's view, the policies in question provide for cover or there is a "reasonable argument" that they do so, the CBI may intervene by communicating its views to the insurance company and its expectation that the insurance company apply the customer-favourable interpretation to all similarly-affected customers.
- In carrying out its assessment of relevant insurance policies, the insurance companies must review not only the wording of the policies, but also:
- customer communications, including via intermediaries (including to assess what customers reasonably understood);
- insurance company staff understanding of the relevant provisions of the policy and whether they changed over time;
- any internal discussions about the provisions.
- Where a policy-holder commences litigation against an insurance company in relation to the relevant terms of the insurance policy and it is agreed between the parties that the case might act as a "test case" for the interpretation of policies of a wider group of policy-holders, the insurance company is expected to:
- Narrow the issues in dispute, so that the case can proceed expeditiously and in the least costly manner;
- Pay the reasonable legal costs of the policy-holder and not seek to recover their own costs from the policy-holder, even if the insurance company wins the case.
- The CBI is using its compulsory powers to obtain relevant information from the insurance companies and is requiring the information to be certified as accurate and complete by a senior executive with authority to bind the insurance company. This certification process underscores the CBI's increasing focus on individual accountability and the risks the certifying individuals face if the information they certify turns out to be inaccurate.
Structure of the Framework
The Framework is composed of four modules, setting out the CBI's overall supervisory approach:
Module 1: Scoping, information-gathering and certification. It appears that, whilst this is an on-going process, the CBI is already well down the road of engaging with the insurance companies to obtain relevant information.
Module 2: Analysis and categorisation. A clear aim of this module is to enable the CBI to distinguish between types of policies in which:
- it is clear that cover is available;
- it is clear that cover is not available;
- a "strong or reasonable argument" could be made that cover is available.
Module 3: Supervisory engagement and escalation. The CBI will look to intervene as quickly as possible to communicate its views, in order to resolve issues and ensure that any customer-beneficial interpretation of a type of policy can be applied to all similarly-affected customers. The CBI has emphasised that it has a range of tools it can rely on in the event of non-compliance by the insurance companies.
Module 4: Legal action outcomes. As noted above, where any relevant legal action against an insurance company (such as a complaint to the FSPO or litigation) has concluded with an outcome favourable to a customer, the CBI expects that the insurance company will carry out an impact assessment. This should assess whether the outcome could have a beneficial impact for other customers and, where this is the case, the insurance company must ensure that the other customers get this benefit.
The Framework sets out a comprehensive overview of the CBI's approach to the issues and its customer-focus. It is interesting that the CBI has chosen, so far at any rate, not to adopt the approach taken by the UK regulator, the Financial Conduct Authority (FCA), which has taken test litigation against a number of insurance companies in the UK with a view to establishing the law in this area.
The CBI's approach of requiring senior executives within insurance companies to certify the accuracy and completeness of the information they provide to the CBI will certainly concentrate the minds of many individuals on the increasingly important issue of individual accountability and the risks for individuals of 'getting it wrong'.
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