After more than eight months of legal wrangling, Santam clients received a glimmer of hope as the insurer announced it would start processing Business Interruption (BI) insurance claims.
However, as brokers received letters outlining the claims process, and requirements to validate claims, it became clear that there was a catch.
From the very beginning, it seemed insurers were playing a waiting game by delaying the claims process to exert financial pressure on desperate tourism businesses and force them into accepting lower settlements.
Play this strategy out long enough, and many tourism businesses could fail altogether, defaulting on premiums or liquidating, thus negating any possible payouts.
How the insurance industry has dealt with their clients during the pandemic has thrown a spotlight on fairness and trust.
But to understand the underlying game and remove the confusion caused by cleverly worded press statements, it merits unpacking the timeline of events in 2020, which tells an interesting, but disturbing story.
Read the full Addendum of events leading up to January 2021 below.
Santam’s public statement that it would now start assessing the BI claims of its clients comes with two important caveats.
The first is that they require evidence of COVID-19 cases within the specified radius as stipulated in the policy. No problem, one would think, as cases of COVID-19 are to be found across the country.
According to Santam’s letter, “such evidence is required as at 27 March 2020, the date of the national lockdown”.
Why is Santam still insisting on proof of a case within the specified radius, on the date of the start of lockdown, when they have stated in their own letter that “the lockdown is part of the insured peril rather than a consequence of it”?
If the lockdown, which was imposed to limit the spread of the disease, resulted in successfully preventing cases in our area, how can this then be used as an argument to negate or limit our business interruption claims?
Tourism businesses were forced to shut their doors on March 27 last year, irrespective of whether there were local cases or not. Surely, Santam's insistence on proof of a local case is a circular argument that doesn’t hold water?
The second is that Santam still intends to go ahead with their appeal on the ruling by the Cape High Court that they must cover the full indemnity period (18 months in the Ma Afrika case). They believe that the indemnity period should be limited to three months.
With this appeal only scheduled to be heard in February, the resulting continued delay in claims processing is doing irreversible harm to South Africa’s vital tourism sector.
If Santam were simply to pay further interim payments to their clients, which are no doubt on their knees, then such relief would allow the legal process to continue to finality whilst the tourism businesses avoid failure. Such interim payments would naturally be limited to the three-month indemnity period which Santam is currently standing fast on.
However, current engagements between Insurance Claims Africa and Santam last week tell a different story. Santam seems unwilling to process any interim payments up to the three-month indemnity period stating that any such claims will be treated as “full and final settlement”.
If Santam is confident of its appeal case, and is truly committed to supporting its clients, how can they be unwilling to pay out interim payments that would in any case not exceed the indemnity period that they are appealing?
Is it possible that the sad timeline of events, and this latest twist is laying bare the insurance giant’s real strategy? Is the continued delay not just part of a plan to force clients to accept lower final settlements?
As of January 2021, it has been a year since the COVID-19 pandemic began to spread across the globe and 10 months since South Africa’s lockdowns were instituted and subsequently our CBI claims were submitted – with no clear end in sight.
Many of us have managed to survive with zero income for the first four months of lockdown, and massively reduced income since then (whilst continuing to loyally pay our full insurance premiums). But how much longer are we expected to survive this war of attrition with our insurers?
Given the events laid out since March 2020, can insurers like Santam honestly say that they are treating their customers fairly? Will they do the right thing, or persist with their damaging “Insurance End Game”?
As much as this strategy must be causing Santam huge reputational harm, the effects felt by tourism businesses are infinitely more real – just ask their owners, employees and service providers who live the economic consequences daily.
Addendum – Business Interruption Insurance Events
On March 18, tourism businesses were issued with carefully worded letters that gave no admission of the insurers’ potential liability and outlined how COVID-19 claims should be approached.
Tourism businesses that had registered claims sought the assistance of claims professionals like Insurance Claims Africa (at our own cost) as it appeared that insurers had little intention of honouring the claims.
On April 1, our Insurers announced that a new exclusion to our policies, specifically excluding COVID-19 as an indemnifiable CBI event for future outbreaks would be applied from June 1, 2020. Instituting the exclusion was tantamount to admitting that the
current COVID-19 outbreak was covered by our existing CBI policies.
ICA began negotiations with Insurers in early May and initially there were indications of progress towards settling claims.
On June 9, ICA began its robust media campaign urging insurers to come to a settlement with tourism businesses which were under severe financial stress.
On June 12, Santam made an about-turn on negotiations and stated it wished to obtain “legal certainty” on the issue before being willing to entertain any claims.
Next came the court cases: The first between Guardrisk and Café Chameleon and then between Santam and Ma Afrika (a case represented by ICA’s legal team).
The Guardrisk/Café Chameleon case was heard in the Cape High Court. On June 26, Judge Le Grange found against Guardrisk, ordering it to honour its client’s claim, with legal costs. Guardrisk immediately indicated its intention to appeal the decision in the Supreme Court of Appeal (SCA). The appeal was scheduled to be heard in November 2020.
On 9 July, the Financial Services Conduct Authority (FSCA) released a statement saying that it was “concerned about the behaviour of some Insurers, who are deliberately avoiding paying Business Interruption claims where no grounds exist to do so”.
The tourism sector saw this as a show of support for the Guardrisk/Café Chameleon ruling and a response to the insurers’ delaying tactics.
The FSCA continued urgent engagements with insurers until, on July 25, it announced an agreement for insurers to pay out interim payments to businesses who had submitted CBI claims. This was an attempt by the FSCA to force the insurers to “treat their customers fairly”. Most tourism businesses don’t have the luxury of engaging in court battles and many wouldn’t survive without interim payments.
On July 26, Santam said publicly it would provide up to R1bn (€54.5m) in relief payments to support CBI claimants. They failed to mention that this ‘initiative’ had been driven by the FSCA, which had been putting immense pressure on them.
There is more to these relief payments, however. In 2019, Santam reported net premium revenue of R22.288bn (€1.2bn) (a monthly average of R2.022bn (€109m) in premiums). In the same year, the nett claims reported amounted to R13.86bn (€756m) (giving a monthly average of R1.256bn (€68.5m) in claims). The monthly surplus on nett premiums vs. claims is therefore, on average, R766m (€41.7m), with that having to be used (along with investment income) to cover operational expenses and to earn a profit. We do not dispute the right for any business to earn reasonable profits, such as the 10% before tax profits reported by Santam in 2019.
However, the above figures give some context to the additional surpluses that must have been earned by the insurance sector during the lockdown level 5 and 4 periods. Many clients would like to see some transparency from insurers during the lockdown period, and that Insurers should declare their actual figures. In the absence of any information from the sector, however, we can make some broad assumptions about surpluses.
These are not intended as accurate estimates. Rather, to indicate the sums of money involved. Let’s assume that the lockdowns for a period of two months led to a reduction of claims of around 50% (a conservative estimate). This assumption leads to an additional premium surplus of around R1.256bn (€68.5m) for the two-month period in question. It appears that Santam would have suffered no injury in their relief payment process as their excess premiums vs claims surpluses earned during the lockdown could easily cover the R1bn (€54.5m) promised to clients.
To the great relief of the tourism sector, and after much pressure from the FSCA, interim relief payments were finally processed for businesses on their CBI claims during August 2020. However, in most cases, the interim relief payment was capped and represented less than 10% of clients’ potential claims.
While it was certainly appreciated and went some way to alleviating our collective financial stress, it still represented “too little, too late” if the legal process were to be drawn out beyond the end of 2020.
On September 1, the Santam/Ma Afrika case was heard in the Cape High Court, but this time before a full bench of three high court judges. On November 17, the Cape High Court ruled against Santam in favour of Ma Afrika, ordering it to honour the Ma Afrika CBI claim for the full indemnity period of 18 months, with legal costs.
On September 20, Santam announced its decision to appeal the Cape High Court ruling in the Supreme Court of Appeal (SCA). The appeal would be scheduled to be heard in February 2021.
On November 19, just one week before the SCA was due to hear the appeal on the Guardrisk/Café Chameleon case, Santam and Guardrisk wrote to the SCA requesting a delay in the Guardrisk appeal so that the two appeals could be heard together in February 2021. The rationale behind such a request was: “while there are small differences in the policy wordings in both matters, the issues being dealt with are very similar”.
ICA’s legal team vociferously opposed this request, citing it as a delaying tactic that would further endanger the viability and therefore the claims of many businesses. Thankfully, the SCA denied the request and went ahead with hearing the Guardrisk/Café Chameleon appeal on November 23 before a bench of five supreme court judges.
On December 17, the SCA ruled against Guardrisk’s appeal and once again ordered it to honour the full Café Chameleon CBI claim, with legal costs.
Case closed, one would think. Reason and ethics have prevailed, but not quite yet.
Despite having asked to join the appeal on the basis of the similarity of the two cases, Santam now stated it would proceed with its appeal on the basis that there were now apparently ‘material differences’ in the two cases. Are the cases “very similar” or materially different, Santam?