The Financial Conduct Authority (FCA) is seeking clarity from UK courts over business interruption claims caused by Covid-19. The regulator has written to a small number of insurance firms asking them to join a court process – a first for a UK insurance regulator - to help “resolve uncertainty for many customers making claims.”

The sector has come under fire from customers and the public as most conventional business interruption policies do not cover pandemics.

The UK industry is likely concerned by developments in the USA, where eight states have introduced legislation requiring insurers to pay Covid-19 related claims despite exclusions for pandemics enshrined in policy wording.

Willis Towers Watson has estimated the potential claims cost to the industry as $14bn if all claims were paid. While the UK government will most likely not saddle insurance carriers with such a burdensome cost, the FCA has made clear that insurers must consider premium refunds where the lockdown has meant insureds not receiving services included with their policies.

 The uncertainty surrounding Covid-19 and business interruption cover is likely to weigh on insurance sector valuations until we have clarity.