As insurers evaluate their exposure to the Covid-19 pandemic and the scale of the Covid-19 effect on the insurance (and reinsurance) market becomes clearer, it is inevitable that insurers will re-consider their product offerings and make adjustments to policy wordings. In particular, insurers will be considering new Covid-19 and/or pandemic exclusions.

When contemplating such changes, insurers will want to bear in mind certain regulatory and contractual considerations. We set out below a number of the key points to consider in these areas.

Regulatory

From a regulatory perspective any changes to policy coverage, whether mid-term or on renewal, should be considered in light of the FCA's Principles, in particular:

• FCA Principle 6 – a firm must pay due regard to the interests of its customers and treat them fairly; and
• FCA Principle 7 – a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

With respect to Principle 6, the FCA has stated that it expects firms to take into account the needs and particular circumstances of individual consumers (including any vulnerabilities) when considering what may be an appropriate change to make on renewal or whether to suspend a product.

To this end, firms should bear in mind that the fair treatment of vulnerable customers is a key priority for the FCA. The definition of "vulnerable customers" is intentionally broad, capturing anyone who "due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care". Consumers may move in and out of “vulnerability” as circumstances dictate which means that firms should take care to actively assess this in light of the potential health and economic consequences of Covid-19 where changes are being considered to policy terms either on renewal or mid-term.

In the context of Principle 7, the FCA has stated that it expects policy coverage and exclusions (including all changes) to be clearly explained to consumers who are due to renew their policies. In particular, the FCA has warned that if firms are changing their policies to exclude coronavirus in a consumer policy, it expects them before renewal to "make it very clear, in a prominent position… that their policy has changed, and…the exclusion".

When handling renewals, firms must, of course, continue to adhere to the other requirements set out in the FCA Handbook, for example, under ICOBS 6.5.1R regarding the communication of certain information to consumers in good time before renewal: (a) clearly and accurately, (b) in writing or another durable medium; and (c) in a way that is accessible and which draws the consumer's attention to it as key information, and under ICOBS 6.1 regarding the provision of product information and an IPID to customers.

Contractual

If firms are looking to make mid-term adjustments to exclude Covid-19 related losses, whilst each policy wording will need to be considered on its own basis, the following points should be looked at in each case (some of which have been recently flagged by the FCA):

• 1. Whether a potential claim has already been notified under the terms of the policy.
• 2. Whether there is a term in the contract that permits the insurer to make the change mid-term.
• 3. Where there is such a term, can the insurer rely on it from a Consumer Rights Act 2015 perspective (i.e. is it fair, transparent and prominent).
• 4. Whether there are any specific conditions attached to exercising the right to amend the policy wording, for example, a requirement to give notice to the insured or obtain the prior consent of the insured.
• 5. Whether exercising the right to amend the wording would give the insured a right of termination.

Next steps

In summary, when considering mid-term adjustments, renewals or product suspensions in the context of Covid-19, insurers should ensure customers are treated fairly and that information is communicated in a clear, fair and not misleading manner.

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