Insurers are still seeking legal certainty from the South African courts on Business Interruption (BI) insurance pay-outs.
This is despite the fact that two major insurers – Santam and Hollard – heeded the call by the Financial Sector Conduct Authority (FSCA) to consider providing interim relief to their Business Interruption insurance policy-holders who have the appropriate contagious disease policy extension.
The FSCA in fact made the appeal on Friday (July 24) due to the fact that legal certainty will “undoubtedly take time to achieve”, with dire consequences for policyholders who have already been impacted severely by COVID-19 and the national lockdown.
On Saturday, Santam Group CEO, Lizé Lambrechts, announced a package of R1bn (€5.2m) in relief funds for policy-holders. This equates to 70% of two months’ value of the sum insured for Santam’s policyholders in the tourism and hospitality sector.
“The two months are indicative of the period where most businesses were impacted by the restrictive trading environment imposed by the Levels 4 and 5 lockdown in the country.
“The 70% is based on a view that the businesses would have experienced variable expense savings during the lockdown. The relief payments will be set at a minimum of R25 000 (€1 315) and a maximum of R1.5m (€789 000) for individual Contingency BI (CBI) policyholders.
The company will commence the relief payments from the first week of August 2020. “This relief payment does not impact the insurer’s efforts to obtain legal clarity on its policy interpretation through the courts. We remain confident in our interpretation of our policy wording as it pertains to the CBI extension in our cover,” said Lambrechts.
CEO of Hollard’s short-term business unit, Willie Lategan, acknowledged the complexity of business interruption cover, and reiterated Lambrechts’ view that the insurer believed that nationwide government closures or lockdowns were not insurable risks.
“We believe that legal certainty regarding lockdown-related claims is urgently required. However, like the regulators, we are cognisant of the fact that this legal process is likely to take some time, and we’re concerned that many smaller businesses will be unable to survive until legal certainty is established,” said Lategan.
He added that Hollard was thus making these payments now, irrespective of the outcome of the legal process. Both insurers are excluding large tourism corporations from their relief funds.
‘Trust has been broken’
SATIB Insurance Brokers has welcomed these announcements, with Executive Head of the company, Dewald Cillie, highlighting that the tourism industry was losing R748m (€38.6m) every day it cannot operate.
“Amidst a great deal of media lobbying that has taken place, it was clear to SATIB that pursuing a legal route simply wasn’t an option for many businesses. We pushed hard to persuade insurers to offer a hospitality relief fund and we are relieved on behalf of our customers that some insurers have heard the industry’s pleas.”
Cillie noted that SATIB would further continue to put pressure on other insurers to take the lead shown by Santam and Hollard.
“While this is definitely a step in the right direction, it will be important to see what the quantum of the relief measures will look like,” added Ryan Woolley, CEO of the loss adjustment firm, Insurance Claims Africa (ICA) – which is representing over 600 BI insurance claimants from the tourism and hospitality sector.
Woolley pointed out that it was clear from the FSCA statement that regulatory authorities were also deeply concerned about the long-term reputational damage that insurers’ unconscionable behaviour was having on the insurance industry.
“Trust has been broken, and the insurers have a massive job to do to restore the public’s faith in their companies,” he noted, adding that ICA remained “disappointed” that the insurers had not agreed to a settlement.
“This, when there has already been a decided court case and the FSCA reinforcement to pay these claims,” said Woolley.