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FCA consults on business interruption guidance

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The UK regulator has released draft guidance to smooth the process for coronavirus-related claims under some wordings following the High Court’s judgment on business interruption exclusions.

Parts of the High Court judgment have been appealed to the Supreme Court, but the Financial Conduct Authority (FCA) says its guidance relates to matters that are mostly not in dispute.

“We are launching this consultation so that we will be in a position to issue it as soon as possible, once we have the judgment of the Supreme Court,” it says.

The guidance relates to policies that require evidence of the presence of coronavirus within a particular area and outlines the type of information that can be used.

That includes media reports of a case near a premises, National Health Service data on COVID-19 deaths, Office of National Statistics data on deaths and regionally reported government data.

Insureds may also use a geographical distribution methodology, where reported cases are averaged and weighted across an area and an “uplifting” approach which reflects likely under reporting of cases.

The FCA says it’s likely to be relatively straightforward for policyholders whose business premises are located in densely populated areas, such as London, to demonstrate the presence of COVID-19, particularly if the policy refers to a large radius such as 25 miles.

But an undercounting analysis is more likely to be required in more rural locations, especially for periods of time when testing was at low levels.

“As per the court’s declaration ‘absolute precision is not required’, and based on the court’s judgment, insurers will be expected to reach agreement with policyholders as to a suitable undercounting analysis where one is sought,” the draft document says.

Comment on the draft is due by January 18.