FCA proves it can be Fast, Competent and Adept in insurance test case


The High Court judgment on business interruption insurance handed down on Tuesday makes the Financial Conduct Authority look Fast, Competent and Adept. For once.

The test case brought by the watchdog scrutinised 21 policy wordings across eight insurers, including Zurich, Ecclesiastical, RSA and Hiscox. The process, launched in May, aimed to bring clarity and certainty to policyholders left in the lurch after insurers disputed whether Covid-19 business interruption claims were covered. 

The detailed judgment delivered four months later largely does that. Policyholders affected by the ruling should hear from their insurer within seven days, the regulator said, although it will be longer before they see any money. Appeals could still slow things down.

The FCA’s arguments on behalf of policyholders came off far better with the judges, too. When the two judges said elements of the insurers’ cases would render cover “illusory”, result in “significantly anomalous results” or include “fundamental fallacies”, they are skewering the industry’s weasel words. 

The decision casts aside insurers’ resistance to paying up on hard-to-fathom grounds that the pandemic was a nationwide phenomenon rather than a series of little local outbreaks. It finds largely in favour of policyholders where cover was based on protection against diseases. So much, it seems, for worming out of policies by saying they were created to cover salmonella, not Covid-19. 

Not everything went the policyholders’ way. The judges were less favourable where businesses took out cover to protect themselves against being unable to use their premises. If closures were not mandatory, businesses were not covered. Restaurants that exclusively provided eat-in catering have a better chance of claiming than those who offered take-out too. 

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Hiscox, the insurer that came to epitomise the industry’s objections, had policies mainly of this last type. Hiscox now says less than a third of its policyholders will be covered thanks to the ruling, and has cut its liability estimate from up to £250m to less than £100m (net of reinsurance) in extra claims. Even RSA, which sold disease-based protection, expects the impact of the judgment to be just £85m and possibly less. 

Just as the judges have got on with the case, insurers should be encouraged to settle up with policyholders quickly. Payments will doubtless come too late for some. But the FCA has done what it can to avoid the injustice that is delayed justice. If only it was similarly efficient in all that it does.

A right pair of grocers

Marks and Spencer was once a short-seller’s dream, Kate Burgess writes. No longer. J Sainsbury ranks in the top five most shorted stocks in the UK, alongside beleaguered Hammerson and Metro Bank. Hedge fund grandees including Pelham, AHL, and Third Point have all taken bets that shares in the UK’s second-biggest supermarket will fall. IHS Markit reckons short positions rose nearly a quarter in August. BlackRock’s short position in Sainsbury has risen to about 2.65 per cent of the shares or about half its long investment. 

Citadel has shorted Sainsbury while raising its stake in Marks to 5 per cent. That has the look of a gamble that Marks’ shares will rise and Sainsbury’s will fall or a “pairs trade”. 

The obvious pairs trade would be to gamble on the disrupter against the disrupted. That is not what is happening here. 

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It is hard to be very positive about the much-disrupted Marks even if the shares are at a multiyear low. Its struggles as a merchant of pants and pullovers persist. Its tie-up with online grocer Ocado went live this month, which will help drive its food business forward.

But Covid-19 has arguably proven a more effective disrupter than Ocado in pushing customers to shop online. And Sainsbury has been the greater beneficiary. Sainsbury’s online sales rose 87 per cent in its second quarter to the end of June. Ocado said on Tuesday that its e-sales of sugar and other sundries rose 52 per cent in the 13 weeks to the end of August.

Nonetheless, Sainsbury’s challenges loom very large. 

To begin with, Sainsbury expects coronavirus-related costs to hit profits by up to £500m in the full year. Fuel sales, which swell its cash receipts, have been falling and force the supermarket chain to draw on working capital from lenders.

The outlook for its Argos stores remains uncertain. Tesco and Wm Morrison — which has recently cemented its online tie-up with Amazon — are muscling up for a price war to win market share that will make Sainsbury the loser.

Nor will Sainsbury’s bank, which offers travel products, unsecured lending and insurance to customers, help. Bad debts are expected to rise. That will not be lost on hedgies betting against Lloyds Banking Group as a proxy for a downturn in the UK economy.

It may be a stretch to consider buying Marks. It is not a stretch to sell Sainsbury’s shares. 

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FCA: Cat.rutterpooley@ft.com

M&S and Sainsbury: Kate.burgess@ft.com



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