The Supreme Court handed down judgment on the FCA Business Interruption Insurance test case appeal on Friday 15^th January.

This largely agreed with the High Court ruling, in favour of the FCA and those policyholders with Non-Damage Business Interruption policy wordings. 

The case was brought forward by the FCA to appeal certain issues on which it did not succeed in the High Court. Six insurance companies also appealed certain decisions made by the High Court and responded to the FCA’s appeal. The insurers were Arch, Argenta, Hiscox, MS Amlin, RSA and QBE; all of whom had their appeals dismissed. 

The Test Case was designed to achieve clarity for policyholders, by seeking a binding court decision on the meaning and effect of the twenty-one sample policy wordings, provided by eight defendant insurance companies, albeit only six insurers appealed the High Court decision.

The sample wordings were chosen to be representative of those in the market that provide coverage for:

• Infectious and notifiable diseases (except where the policy contains a list of diseases or includes a limited number of notifiable disease).
• Official actions or advice which affect a policyholder’s ability to access or use the insured premises.

The Supreme Court also considered the issue of causation and the basis on which successful claims might be quantified.

As previously explained, the vast majority of insurers were not party to the test case, nor are their policy wordings impacted by the Judgment. This is because physical damage to property is required by the majority of policies in order for there to be a valid Business Interruption claim or the list of diseases for which cover is provided is an exhaustive list and COVID-19 is not included.

The Judgment document consists of 114 pages, therefore, the FCA will publish a set of Q&As to assist brokers and their clients in understanding the test case ruling. The FCA will also publish a definitive list of Business Interruption policy types that potentially respond to the pandemic based on data that we will be gathering from insurers.

We welcome the clarity that the Judgment provides and we expect any issues not addressed by the Judgment will be assessed on a case-by-case basis as part of the normal insurance loss adjustment process. This should apply to all government restrictions, whether national or local, provided that a relevant policy was in force at the start of the relevant lockdown period.

Although the judgment establishes a number of points of principle on policy wording interpretation, the key point to keep in mind is that each policy and claim will need to be considered on its own merits, guided by points made in the judgment.

The Supreme Court’s judgment will be condensed into a set of declarations. The FCA and all defendant insurers are working as quickly as possible with the Supreme Court to enable the Court to issue these declarations.  

While there may never be a way to completely make up for the financial losses that the pandemic wreaked upon businesses, the Supreme Court ruling is one of the most significant for business in modern times. The result should leave the insurance industry in no doubt that they should immediately start doing the right thing and settle valid claims.

We have studied the judgment in extreme detail and written to those clients with policies which we believe to be affected, albeit we are still awaiting the definitive list from insurers. Should you have any questions that you would like to discuss or require any additional support, please do not hesitate to contact your Hamilton Leigh Client Service Executive.

Please click on the link for the Supreme Court judgment here.

A summary of the ruling from Herbert Smith Freehills can also be found by clicking on the link here.

The Trade and Cooperation Agreement (TCA) signed by the UK Government and the EU on 24^th December 2020 ensures tariff-free trade for goods will continue as before. The agreement stipulates how the two economies will interact on a vast range of issues but it does not currently provide access for UK insurers or brokers to the EU’s single market from 1 January 2021. This will impact the arrangement of insurance for businesses, people or property situate in the EU. It does not however impact the insurance of businesses that simply sells their goods into the EU.

Both sides agreed during the negotiations to discuss financial services separately. In a document published on 24^th December, the UK. government said the agreement includes provisions to support trade in services, including financial services and legal services.

From 1^st January 2021, UK financial services firms (including insurance companies and brokers) no longer have automatic passporting rights. Passporting previously allowed firms to sell their services into the EU from their UK base without the need for additional regulatory clearances.

In order to continue to access the single market without passporting, UK based financial services firms will have to rely on ‘equivalence’ decisions, currently being negotiated between The Treasury and their EU counterparts.

The UK has implemented a Temporary Permissions Regime to support EU based firms operating in the UK with passporting rights but currently, there is no equivalent EU wide scheme for UK firms operating in the EU. We are hopeful an agreement will be reached during the first quarter of 2021. As Britain’s Services sector accounts for 80% of our economy and employs over 1.1 million people, this has now become a priority.

We have been taking proactive steps to provide our clients with compliant insurance solutions in a post-Brexit trading world.  Over the last year we have been engaging regularly with insurance companies and our EU broking partners, preparing for this eventuality and to identify and mitigate any potential risks to our clients and their businesses.

Hamilton Leigh is committed to ensuring we continue to provide our clients with EU cover solutions, with continuity of service for their risk and insurance needs in the EU and has formed an alliance with an associated partner brokerage; Crotty Insurance Brokers Ltd, based in Dublin and regulated by the Central Bank or Ireland. This alliance enables us to continue supporting our client relationships and to provide a practical solution for those clients with businesses, people or property situate in the EU.

With regards to existing insurance contracts, EU coverage remains in force up until your renewal, at which time we shall agree a strategy for the year ahead. Please rest assured we will do all we can to ensure any changes are as seamless as possible.

We shall be in touch with you over the next few weeks to discuss your EU cover requirements in more detail but should you require more information in the meantime, please contact your Hamilton Leigh Client Service Executive.

The UK formally left the European Union on 31 January 2020. Whilst we now have a Free Trade Agreement, uncertainty remains on whether this will be extended to facilitate access to the EU’s single market for UK financial services.

From 1st January 2021, UK motorists including road hauliers driving in the European Economic Area, Andorra, Serbia and Switzerland will need physical proof of motor insurance when they travel; commonly referred to as a Green Card, until such time as the EU Commission agrees that the UK can remain part of the Green Card Free Circulation Zone. The Green Card requirement will also apply to motorists in Northern Ireland driving across the border with the Republic of Ireland.

All European Economic Area (EEA) countries (EU countries, and Iceland, Liechtenstein, Norway) are part of a Green Card free circulation area, meaning that motorists based there do not have to carry Green Cards when visiting other countries in the area. UK motorists will be required to carry Green Cards for driving in the Republic and other EU states, until such time as the European Commission agrees that the UK can remain in the Green Card Free Circulation Zone.

Motorists failing to carry a Green Card when one is needed, risk having their vehicle seized and facing prosecution.

What is a Green Card?

A Green Card is an international certificate of insurance that proves you are insured to drive in the EU. They’re issued and signed by your vehicle insurer, and include your vehicle and registration details. You’ll need to have one with you if you’re driving in Europe and you’ll need a second one if you’re towing a trailer or caravan.

You also need to take your vehicle registration document (V5) to prove you own the vehicle and have a GB sticker on your vehicle and any trailer. In some countries you’ll need an international driving permit (IDP) Check if you need an IDP.

How long do they last for?

A Green Card can last for up to 90 days (or until you’re due to renew your motor insurance, if your renewal date is less than 90 days away), but you should check your policy booklet for details on how long you’re covered to drive in a single trip abroad.

What happens if my insurance renews whilst I’m driving abroad?

When you renew your insurance you’ll need a new Green Card for your new policy, even if you keep your insurance with the same insurance company. If you decide to switch to a new insurer, you’ll need to ask them for a new Green Card.

If you plan to be driving your vehicle abroad, please make sure you apply for a Green Card at least 3-4 weeks in advance of your trip as some insurers require a minimum of 3 weeks’ notice in order to produce the document.

What will happen if I don’t have a Green Card when I travel abroad?

You could be breaking the law, be refused entry into the European country, receive a fine and/or have your vehicle seized. Motor insurance policies do not cover loss or damage caused by the legal confiscation of your vehicle by HM Revenue and Customs, the police, a local authority or any other government authority – check your policy booklet for full terms and conditions.

What happens if I’m driving with a trailer or caravan?

You’ll need to inform us when you ask for your Green Card as you need a second Green Card for your caravan or trailer.

If you plan to take a commercial trailer weighing over 750kg or a non-commercial trailer weighing over 3,500kg, you must also register it with the Government before you can travel to, or through, most EU and EEA countries.

Summary

Although talks remain ongoing for UK financial services firms to replace passporting rights to offer insurance coverage in the EU, an agreement is unlikely to be reached for several months, if at all. If you are planning on driving abroad in 2021, we strongly recommend planning in advance to ensure you have the correct documentation.

For more information, please contact your Hamilton Leigh Client Service Executive.

Here are the key reasons why this will be the hardest insurance market in a generation:

For the past 16 years, UK businesses have benefited from the longest period of ‘Soft Market’ conditions on record; this side of the market cycle is characterised by low rates, high limits, flexible contracts, and high availability of coverage.

Soft market characteristics

In soft market conditions, insurance companies often try to expand their market share. They enter growth mode, offering cheap rates, attractive policy terms, and, when allowed, discounted coverage. In the most extreme cases, the soft market resembles a bidding war, to offer the cheapest deals. Brokers should have proactively shopped around for their clients but as more businesses moved to new insurance companies offering lower rates, profits for the entire industry began to reduce. On top of that, when focusing on growth, market share and share price, insurers relaxed their previously stringent underwriting attitude, resulting in rising loss ratios. A correction to this unsustainable situation (reduced profits and rising loss ratios) was necessary, forcing the insurance market to harden.

What is a ‘Hard Market’?

In the insurance industry, a hard market is the upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases. This can be caused by a number of factors, including falling investment returns for insurers due to low interest rates, increases in frequency or severity of losses, EU & regulatory intervention deemed to be against the interests of insurers and increased reinsurance costs.

Hard market characteristics

In a hard market, there’s less desire for growth and more of a restriction in the marketplace as insurance companies re-evaluate their books of business, their risk appetites, and how much capacity they want to present in the marketplace. In hard market conditions, underwriters often adhere to stricter standards in an attempt to correct any adverse loss ratios developed during soft market conditions. As a result, insurance rates often go up, the indemnity limits insurers are willing to provide decreases, and the number of players in the market reduce. This makes it harder for brokers to find coverage options, which means the insurers that are offering coverage can increase their rates.

Several factors have caused this rapid hard market? 

• launched in 2016, Solvency II which applies across the whole of the EU, placed a requirement on UK insurers’ to more than double their spare capital requirements. This has led to a number of insurers leave the market whilst others have significantly reduced their underwriting appetite and capacity

• The Ogden discount rate is a calculation used to determine how much money insurance companies should pay as compensation to people who have suffered life-changing injuries so that it will cover all their predicted future losses. When the Minister of Justice changed the Ogden table rate in December 2016, it meant that insurers had to pay out far more on larger personal injury claims. This figure shocked the insurance world, as reserves on catastrophic injury cases had the potential to double or worse.

• The insurance industry has endured persistent high loss ratios since 2013, primarily caused by an increase in frequency of severe property losses. Property rates in the UK were already far too low as we entered 2020 (affecting most commercial insurance policies).  Soft market rating had become completely uneconomic. Even if we ignore the terrible recent events, insurers needed property rates to increase considerably in 2020

• With property accounts already losing money, the last thing UK insurers needed were floods caused by storms Dennis and Ciara, estimated to cost well over £400 million. Climate change is causing insurers to struggle with correctly predicting floods, and they need to build up a pot of money to take care of the next set of bad floods which will inevitably be on their way

• Reinsurance is a key component of an insurers pricing model and rates will rise significantly leaving insurers with no option other than to reflect these increases in their rates and to reduce their market capacity

• When interest rates are high, insurers can get away with a certain amount of underwriting losses as they generate substantial investment income. Unfortunately, this is no longer the case, as the current interest rates are the lowest in the Bank of England near 300-year history. Insurers therefore have no option but to increase rates to balance their books

• Finally, it is estimated that the combination of Covid-19 insurance claims, reduction in business and investment losses will cost the worldwide industry in excess of £200 billion, making it the most expensive insurance event ever. Clearly the current FCA test cases will have a significant bearing on how much the UK insurance industry will have to pay out in Business Interruption losses relating to Covid-19 but this is unlikely to be determined for several months

Holistic View

This leaves us in the midst of rising insurance rates at a time when business risks are seemingly more prevalent than ever. Cyber breaches, climate change, pandemic, trade and professional risks are at the top of mind for most business owners.

Now is prime time for business leaders to take a thoughtful step back and reassess how they view and manage risk within their organisation. Insurers are in the business of risk but given the rapid hardening of premium and terms, businesses with a strong risk management perspective and a track record of low claim activity can avoid the sweeping increases of premiums and terms, likely to affect the majority of UK businesses. 

Taking a holistic view of risk can help identify ways to treat risk beyond just buying insurance. Analytical tools and a focus on total cost of risk can help businesses take a broader approach to managing and financing their overall business risks. Higher excess and/or deductibles are also ways to mitigate the continuing rate increases in the insurance market.

How Can Hamilton Leigh help you?

• Design and introduce a comprehensive and robust risk management programme
• Ensure your risk management strategy, systems & controls are communicated throughout the business to create a strategy of collective responsibility
• Communicate your risk management strategy with your insurers to demonstrate your proactivity
• Agree a risk retention strategy that accurately reflects the business’s risk tolerance appetite
• Investigate alternative risk retention options such as higher excesses and/or deductibles
• Reassess loss prevention practices
• Introduce you to your insurer to develop a strong, supporting business relationship

For further information, please contact Lee Cohen: M: 07980 606886 E: leecohen@hamiltonleigh.com

Throughout this whole period of uncertainty, employers have been required to react and make decisions quickly. Before returning to work, we would encourage businesses to take the time now to consider all options to create a safe working environment as this will be valuable in mitigating any difficulties and potential liability claims further down the line. Managing and overcoming understandable employee and customer concerns as to potential COVID-19 exposure once they are back at work, commuting or visiting places of business, will be far more challenging. To build such confidence, measures may be required which exceed the minimum required by official guidance.

Review the full update and government advice here.

In preparation for reopening your business and asking employees to come back to work, it’s imperative that your company thoughtfully constructs a return to work plan for its employees to keep everyone healthy and safe following the COVID19 pandemic.

A return to work plan is typically created to help reintegrate workers who have been injured or have been on leave. The plan includes details on how the worker will gradually return to work and any job related specifics. Its purpose is to formalise steps for a safe and quick return to work. Download the full guide to explore what your COVID-19 return to work plan should include.

Download the guide here

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Binocular Face Recognition and Temperature Detection Machine

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Outform’s iDISPLAY Thermometer is designed to instill a sense of trust and safety in people across industries as they re-commence everyday activities, and public gatherings post COVID-19. As we continue to find innovative ways to do our part in flattening the curve, Outform’s non-contact infrared thermometers will enable our customers to invite users back in stores, schools, and work, in a costeffective, efficient, and safe way.

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