Geoff Percival: Pubs' win opens door to next financial scandal

With warnings that the FBD court ruling could be the insurance industry's very own tracker mortgage scandal, the test cases could end up saving the pub trade

A woman walks past Sinnotts pub in Dublin's city centre as the High Court ruled that four pubs owners are entitled to compensation from insurer FBD over losses suffered because of Covid-19. Picture: Brian Lawless/PA Wire

A good day for pubs, despite there being none open in which to raise a glass.

The fallout from the High Court deciding that FBD should, indeed, pay insurance to and compensate four pubs over the losses they have incurred due to the disruption caused by the Covid pandemic could be widespread and long-running.

Ultimately it could end up saving the pub trade, which has seen approximately half of its 7,000 premises around the country remain closed since last March, a number go out of business completely, and more than 50,000 of its workers placed on the pandemic unemployment payment scheme.

However, it also may be the tip of the iceberg which Sinn Féin has warned could be the insurance industry’s very own tracker mortgage scandal.

A wave of Covid interruption insurance claims and court cases are expected — regarding many sectors, and involving a range of insurance firms — in the wake of this case.

This was seen as a test case — focusing on the policies of the largest Irish-owned insurer in the State — and, as such, will act as a weighty precedent. The test case categorisation also meant the plaintiffs won’t be saddled with the legal costs; although, depending on who you talk to, there could be a row brewing in this regard too.

It has been estimated that the insurance industry could be hit with an overall Covid business bill of up to €20bn when the dust eventually settles on the pandemic crisis. 

This will inevitably raise fears of higher premiums for customers across the board.

Opposition parties — particularly Sinn Féin and People Before Profit — have said any prospect of insurers making losses this year, due to business disruption claims, should not be used as an excuse to put up premiums.

The full amount FBD will have to pay out to pubs will be determined later this month. FBD said it expects its overall costs to be “well within the range of considered financial outcomes”. 

It had set aside €30m to cover losses from the case. However, analysts expect that figure to double at least, now that it has lost.

Either way, it’s bad news for FBD shareholders, as any decision on reinstating their dividend is likely to be put on the backburner probably until next year.

The insurer had planned on paying its shareholders €35m on the back of its 2019 financial performance.

Central Bank's role criticised

However, it has been the Central Bank’s role in all of this that has been perhaps most heavily criticised. 

The regulator got it in the neck for not bringing the test case against FBD on behalf of the pubs, in the first place.

This was something the UK financial regulator did in a similar Covid interruption insurance case there, immediately removing stress, risk, and cost for the plaintiffs.

The Central Bank’s reaction was to remind firms to honour valid claims and pay them promptly, adopting a customer-first approach to resolutions. While it didn't bring the case, the regulator did mandate FBD to cover the plantiffs' legal costs, win or lose.

Industry groups such as the Alliance for Insurance Reform and small business representative body Isme have long called for the Central Bank to unburden itself and split its dual macroprudential/financial institution solvency mandate and its consumer protection mandate — to basically police the lenders and insurers, and let someone else care for the consumer. 

A call for its consumer protection mandate to be farmed out to the Competition and Consumer Protection Commission has been made before, and is likely to be repeated.

Sinn Féin’s finance spokesman, Pearse Doherty, has asked the Central Bank to launch a formal business interruption insurance examination, similar to the tracker mortgage probe.

For nearly 12 months, Mr Doherty has been warning of the non-payment of valid business interruption claims, due to Covid, becoming Ireland’s newest financial scandal. In fact, he already views it as a scandal.

“The consequences for insurers that refuse or delay payment of valid claims for business interruption should be severe, with strict enforcement and heavy financial sanctions," he said. 

"This examination should follow the structure of the tracker mortgage examination, with swift outcomes, strict enforcement, and heavy sanctions for insurer malpractice." 

“It is time for the Central Bank to step up to the plate and defend the interests of policyholders.”