‘There’s no point looking backwards’ at industry’s BI woes says economic secretary

The insurance sector has to put its troubles surrounding the FCA’s business interruption (BI) test case behind it and “move forward” to “improve that relationship and the reputation of the industry”, said conservative party politician and economic secretary to the Treasury John Glen.

Speaking at the ABI’s annual conference last month, which this year was held virtually, Glen noted that although “some people still feel aggrieved and disappointed” over the results of the test case action, he looks “to the future positively” and believes that the insurance industry “will play a very significant role” as the UK emerges from the latest coronavirus lockdown.

Acknowledging that the sector’s reputation had been dented by the circumstances arising from the Covid-19 pandemic, he said: “I think the test case has resolved a lot of the outstanding matters.

“We’ve got to now move forward and look at what we can do to improve the situation, improve that relationship and the reputation of the industry. There’s no point looking backwards.

“What we’ve got to do is get it right for the future and ensure that people understand what the industry can give them because it’s a fundamentally positive opportunity for businesses to insure against risks, but let’s define what those are and have a clearer understanding of what that means in a difficult circumstance.”

In conversation with session chair Aasmah Mir, a Times Radio broadcaster, Glen emphasised that following the BI test case, “there’s a responsibility across the value chain with all actors being clear to consumers about what they’re buying, what that contractual obligation means on both sides and what it doesn’t mean”.

He continued: “I think we need to have better clarity of understanding of that. Going forward, it will be about saying what is insurance? What does it cover? What doesn’t [it cover]? And, therefore, where are the gaps and what role does government play perhaps in looking at filling those gaps in the sorts of situations that we’ve had this last year.

“But it is clarity of understanding of what that contractual obligation on both sides means and what it doesn’t mean, and the fact that there will probably be premium products to give that greater level of assurance, but you will have to pay for that and the increased cover that will be paid out.”

Sensitive collaboration

On managing climate change-related risks, Glen added that there needs to be “sensitive collaboration” between the government and insurance industry, which mirrors the approach taken by Flood Re and Pool Re.

“What we’ve seen over this last year is the government and insurance industry working closely together to come up with the right solutions, [for example] trade credit insurance. On climate-related risks, it will be an ongoing collaboration and conversation to get those interventions right,” he explained.

Glen continued that the UK, and London in particular, has a “leadership role to play” when it comes to the climate change agenda.

He said: “Climate change is a massive, overwhelming challenge and opportunity and it needs a complete and holistic response. It needs changes in behaviour of consumers, it needs a change in mindset and in finance. It also means a building of a private finance system.”

Glen noted that the government “would expect” insurance firms to work with initiatives such as the Insurance Development Forum and the Net Zero Underwriting Alliance “to improve transparency so that finance can be clear about what its investing in, what [the] consequences of that is”.

“I hope by the end of the year, we’ll have developed real momentum across the whole of the financial services sector because it really is the underpinning for the economy as a whole,” he added.