The Financial Conduct Authority has raised concerns over how firms have handled business interruption insurance claims.

It said that some firms had failed vulnerable customers, had poor record-keeping of policy wordings and failed to identify where customers experienced unnecessary delays.

The regulator welcomed insurers quickly paying out interim payments, reallocating resources quickly and proactively communicating with policyholders to help them with claims.

However, Sheldon Mills, the FCA’s executive director of consumers and competition, said: “There are lessons to be learned for the handling of all claims.”

Many firms tried to claim for business interruption during the Coronavirus pandemic sparking a review by the FCA. However some insurers were slow to process claims or rejected some claims.

The FCA has published a review of business interruption (BI) claims following a test case judgment handed down by the Supreme Court last year.

The latest BI claims data shows that £1.5bn has now been paid out by insurers to over 36,000 small businesses as a direct result of the test case.

Mr Mills said: “As consumers and businesses across the country are affected by inflationary pressures and the rising cost of living, it is crucial that insurers are handling claims promptly and treating customer fairly.”

The review identified key areas where firms did not meet FCA expectations regarding fair treatment of customers.

It said some firms and their partners failed to produce clear and robust conduct management information, which affected their ability to identify and address delays in the claims process.

Some firms did not have records of policy wordings that were easily accessible for claims handlers, which resulted in delays for customers.

Some did not adequately identify vulnerable customers or took an inconsistent approach in dealing with the needs of vulnerable customers.

Meanwhile Quality Assurance reviews were too focused on the financial outcome of the claim rather than the full customer experience and failed to identify where customers experienced unreasonable delays. On top of that customer communications were not always tailored to the recipient.

But the review identified good practice by insurance firms, such as putting customers at the heart of the claims process.

It said some firms were quick to move resources to priority business areas and employed technical external expertise where necessary.

Interim payments were issued using basic information received from policy holders, with more detailed assessments of further information to determine full and final settlements.

A range of channels were made available for customers to contact firms, such as greater telephone access and web-based forms.

Firms issued proactive communications encouraging policyholders to provide information to progress their claims.

The FCA said it expected senior managers to ensure customers were at the centre of the claims process and encouraged firms to review their procedures to make sure they mitigate the risk of customer harm.

The regulator said it would consider, where necessary, the regulatory powers available to address the issues identified.