Insurance giants Hiscox and RSA have said they could face around £200 million in claims following a High Court judgment on policies during the Covid-19 pandemic.
The High Court found that the “disease clauses” in most – but not all – of the policies in a test case should provide cover to policyholders demanding payouts, the Financial Conduct Authority (FCA) said.
The FCA, which brought forward the court case, said the ruling could impact 370,000 business and affect claims worth around £1.2 billion.
Hiscox, one of the eight insurers directly involved in the case, told investors on Tuesday that it expects additional claims of less than £100 million, following the decision.
It said this was around £150 million lower than its worst case scenario for the potential impact of the case, sending shares rocketing 10% higher.
Hiscox said that less than a third of its 34,000 UK business interruption policies may need to respond to the judgment.
It added that it is now assessing the outcome in detail to ascertain how all the court’s conclusions should be applied to individual policyholders.
Hiscox said it recognises “these are extremely difficult times for businesses and regrets any contract dispute with customers”.
The firm stressed that it has delivered “resilient” trading so far in the third quarter of 2020 and grew its written premiums by 19% in July and August.
The insurer had come under fierce scrutiny over its policies by the Hiscox Action Group, which represents around 400 firms.
The group welcomed the ruling and called for insurers to start paying out to relevant policyholders.
Rival RSA also responded to the judgment, saying it expects to take a hit of around £104 million across its portfolio of relevant policies.
It said that it believes this impact will reduce to around £85 million after taking into account its own catastrophe reinsurance protection.
Shares in RSA increased by 4%.
The company said the complexity of the judgment and interruption claims generally means the financial impact of this “will not be fully resolved for some time”.
RSA said the cost of Covid-19 related claims has not changed since the firm’s most recent report on its trading in the first half of 2020.
It added that third-quarter trading has been “strong” and hailed the benefit of “greater clarity” regarding Covid-19.