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Law360, London (September 28, 2020, 12:08 PM BST) -- The Treasury has warned that it will act if insurers continue to deduct from claims payouts the value of government grants a business has received — a practice that has angered companies already reeling from the economic effect of the COVID-19 lockdown.
City Minister John Glen said in a letter to the insurance sector on Friday that he was "disappointed" that not all insurers had stopped making the deductions, after a warning from the Financial Conduct Authority last month.
The government provided small businesses with £10,000 ($12,700) grants and hospitality businesses with grants of £25,000 during the lockdown. It has also paid 80% of staff salaries for those who have been sent home under the furlough scheme .
Insurers have admitted that they have deducted the cost of those grants from the business interruption claims they have agreed to pay out on. However, in a U-turn last week, the Association of British Insurers said that 12 of its members had voluntarily agreed to end the practice and pay out claims in full.
But Glen said he was disappointed that not all insurers had taken up that approach.
"These deductions are quite clearly not in line with the intention of the support schemes," he said. Insurance companies should consider the difficulties faced by businesses struggling with continued restrictions during the coronavirus pandemic, Glen added.
"If grant deductions continue to be made, the government will consider further action to protect the financial support being issued to businesses," he said.
The ABI said on Monday in response to Glen's letter that the agreement to end deductions was a voluntary initiative.
"The vast majority of the market is committed to an approach to give added certainty and reassurance to business customers in what can be a confusing issue of government support," a spokesperson said.
A trade body, the Night Time Industries Association, said in July that insurers were effectively trying to use taxpayers' money to reduce their exposures. The Association of British Insurers said at the time that deducting the grants from payouts meant insurers were trying to avoid "double-compensating the claimant."
The FCA said in August that insurers should consider claims on a case-by-case basis, and that a blanket approach to deductions was inappropriate.
--Editing by Ed Harris.
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