Insurers will be more careful about their business interruption policy wordings going forward as a result of coronavirus claims disputes, according to RSA Insurance Group PLC CEO Stephen Hester.

Speaking to analysts about RSA's first-quarter 2020 trading update, Hester said some parts of the commercial insurance industry were "cottage industry like," with insurers using a variety different wordings depending on the scheme or broker they are accepting business through.

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He said: "All insurers will think that maybe we haven't been quite as disciplined as we should have [been] in applying the same high standards of clarity on our wordings in every case." He added that this would lead to "greater concentration" of wordings and companies trying to introduce some standardization to avoid "some of the more ambiguous situations which cause heartache not just for us but for our customers."

He said that as a result, he welcomed the U.K. Financial Conduct Authority's move to clarify business interruption wordings in court.

Hester confirmed that RSA was not one of the insurers on the FCA's initial list for this work, "but that doesn't mean to say we won't be on the final list." He also said the regulator's initiative "is the right way to settle some of these issues, although it itself will take some time."

Claims disputes

In keeping with comments from other insurance CEOs, Hester contended that business interruption policies will generally not respond to the coronavirus crisis. Not all companies had bought business interruption, and of those, not all had opted for the notifiable disease extension that could grant some cover in certain cases, he said. Some disease extensions, he noted, only covered the time it would take to clean a company's premises following an outbreak, typically around two to three days, and would not respond to closure because of government order.

RSA said in its trading update that it had set aside a £17 million reserve for business interruption and related claims. Hester said: "The great majority of claims in BI that are relevant to us are for periods that it takes for a business to be closed and the premises to be cleaned."

While some wordings are clear, Hester acknowledged that litigation over more ambiguous policies was "inevitable."

He also predicted that the "principal claims impact," and therefore resulting increases in insurance prices, would fall on the wholesale insurance market, such as Lloyd's of London underwriters. He said that for companies writing domestic, regional business, "the impacts seem to be less severe, and so it will be less clear that there would be a hard market coming out of that."

He added: "If you were a trader in Lloyd's of London maybe you would see some areas where there might be a hard market, but I don't think it would be right to extend that more broadly at this juncture."