The Financial Services Authority (the FSA) has recently published a factsheet for general insurance providers entitled "Climate change thematic review: flooding – do your customers know what they are covered for?". The factsheet has been published following an FSA review of whether general insurers are giving customers clear and accurate information about their cover. The scope of the review was limited to general insurers who provide buildings and contents cover for personal homes and was itself prompted following two major flood incidents in the UK in 2007 and 2009.
The factsheet sets out the FSA's findings and further action that the regulator expects general insurers to take. In particular, the FSA highlighted the importance of:
- using clear and unambiguous language; and
- the need to highlight the significance of allowing a policy to lapse.
The FSA provided examples of unclear policy wordings which included the use of the words "vicinity" and "locality" when referring to distances from rivers. It also noted the use of the term "property in the open" in exclusions which did not make clear whether the items being referred to were temporarily or permanently outside.
The FSA highlighted that some customers with properties in areas of significant flood risk benefit from an Association of British Insurers statement of principles which guarantees flood cover to such properties (subject to certain conditions) until 30 June 2013. The FSA found that such customers were not being given sufficient information about the implications of allowing their existing policy (benefiting from this guarantee) to lapse.
The FSA has stated that it expects general insurers to take the following actions:
- review the wording used in the questions asked to determine customers' eligibility for cover (eg in call centre scripts, online questionnaires or equivalent) and, in policy terms and conditions, to ensure that the wording is clear and unambiguous;
- ensure that, at renewal, flood-affected customers are made aware of the risks of allowing a policy to lapse;
- update their FSA supervisors on any actions taken by them in the light of the FSA factsheet.