Are COVID-19 Compensation Claims the New PPI?

Photo by Philip Veater on Unsplash

No one can forget the crazy PPI scandal that took the country by storm for years and continues today. So far, a massive £38.3 billion has been paid out in the form of PPI claims since January 2011. 

Now, we may start to witness a new scandal emerge in the form of denied coronavirus compensation payouts. Why has this recent scandal emerged? As the pandemic hit, businesses went bankrupt and so they sought to claim on their insurance policies to protect their business.

Insurers were quick to deny claims in a bid to protect their own interests. Now it may be that these payout denials were unethical and possibly in breach of the financial regulations and conduct. 

So, are we headed for a brand new nationwide claims scandal?

How Did This New Scandal Emerge?

Many insurers have denied claims by businesses to help them through the pandemic after heavy losses and business closures. Policies that should protect businesses from revenue loss under circumstances beyond their control are simply being thrown out. 

Insurers say that coronavirus is unprecedented and that the policies in place are not designed to cover such events. They also claim that if they processed every claim due to coronavirus, insurance companies would risk bankruptcy themselves.

Insurance companies are adamant that pandemics can not be dealt with in the same way as local outbreaks of contagious diseases typically covered in a business’s policy. As a result, insurance companies are refusing to payout, which has led to many businesses becoming vulnerable to huge losses and closure. 

What Does the Future Hold for Insurance Companies?

During the PPI scandal, it was reiterated by the Financial Conduct Authority (FCA) that insurers should not sell policies offering cover they can not provide. They must be transparent and not mislead customers to create better deals and boost their revenues.

It seems that the FCA will hit insurers with the same logic and apply it to coronavirus compensation claims. If policies included protection for loss of revenue and risk of closure due to extraordinary circumstances, they might still have to pay out — even if that circumstance is the unpredictable outbreak of a global virus.

Therefore, we may be about to witness a whole new PPI-Esque scandal for denied COVID-19 payouts for businesses. These denied payouts will likely fall under the same category as unnecessary loans added by banks during the PPI scandal. The FCA’s rules may conclude that businesses were mis-sold a policy that claims to protect them but now won’t payout. 

Businesses may be within their right to claim they are due a payout as they have been regularly paying for a policy that stated it would cover them should their business be interrupted. 

What Will Happen Next?

So far, the FCA has come out and said insurers should make good on their policies with the affected businesses or risk an investigation.

The UK Treasury Committee has also added pressure on insurers to come good and payout. 

So far, insurers have stood their ground and most have refused to start the claims process for businesses wanting a coronavirus payout for the disruption to their business. 

At the moment, it would seem the issue is a legal grey area and it may be a long fight before businesses can make any claims. Both entities have a fair point that needs to be acknowledged.

Insurers are right to express their concerns about the interruption to their own business. A huge swathe of claims for coronavirus payouts would undoubtedly put insurers in a difficult financial position. 

Consumers can equally argue that they bought an insurance policy and paid their premiums, so they are entitled to protection from the financial implications the pandemic has inflicted upon them. 

However, it appears that the consumers have more support than the insurers. With the FCA backing the claims and the UK government holding the same view, it’s likely a whole new claims scandal is upon us. Soon claims companies armed with the claims management software will have the opportunity to benefit from an entirely new scandal.

The question is, when will it all start and will it be enough to protect the businesses already on the brink of closure?