The short-term insurance (STI) industry needs to be extremely cautious, not to damage its credibility by resorting to continued legal appeals over claims related to COVID-19.

So said Dr Roelof Botha, Economic Adviser to the Optimum Investment Group during a recent virtual briefing on outstanding Business Interruption (BI) insurance pay-outs for the tourism and hospitality industry.

While insurers have accepted the court appeals process and ruling that national lockdown was acceptable as a claim for BI insurance, there is a case pending at the Supreme Court of Appeal in respect of the indemnity period for the Ma-Afrika case.

Insurance major, Santam, believes the Western Cape High Court erred in its judgment in applying an 18-month indemnity period across the entire Ma-Afrika policy and is offering a three-month settlement.

Delivering the company’s year-end results in March this year, Santam CEO, Lizé Lambrechts, said Business Interruption claims (following the national lockdown) had negatively impacted the company’s operational performance.  

However, independent research released by Botha and Keith Lockwood, Faculty Member, Gordon Institute of Business Science this week – commissioned by Insurance Claims Africa (ICA) – showed that the short-term insurance industry had earned record profits during the pandemic.

Botha pointed out that total STI premiums received increased by 2.2% to a new record of more than R130 billion (€7.65bn), whilst unappropriated profits increased by more than 20% to a new record of R53.5 billion (€3.15bn). Total assets of the STI industry followed the record-breaking trend by increasing 12% to a level of more than R220 billion (€12.94bn).

“The research exposes the vast disparity between the substantial financial gains achieved over the past year by short-term insurers and their customers, who, because of non-payment of claims, are desperate for any lifeline that will allow them to survive and retain thousands of jobs,” said Botha.

Insurance Claims Africa – which represents over 850 claimants in their ongoing fight to receive final payments from insurers – commissioned this research to establish whether the STI industry at large enjoyed a sufficiently sound financial disposition to afford BI claims.

Ryan Woolley, CEO of Insurance Claims Africa said: “The gross inequity of the situation is blatantly prejudicial to claimants who are still awaiting settlement more than one year after the start of the pandemic. We believe that insurers are ignoring their clients’ extreme financial anguish and are underestimating the level of dissatisfaction and loss of trust from the delays in settlement.

“It is not too late for insurers to redeem themselves by finalising these claims quickly, ethically and fairly. We are urging insurers to make interim payments to customers while they resolve the current bottlenecks within their systems that are preventing payments. 

“For too long now we have watched claimants struggle to survive financially, and I can only hope that the board members and shareholders of these insurers are alive to the difference between their financial positions compared with that of their customers,” Woolley said.

He reiterated a concern by ICA that some insurers were still attempting to limit the quantum that is due to policyholders. “Yet they have been sitting on the funds for over 14 months earning interest,” Woolley pointed out.

‘Administrative shortcomings’

While ICA had had positive interaction, other STIs – such as Hollard South Africa and Old Mutual Insure – had found that the process with Santam continued to be frustrating, said Woolley.

“Santam is working through its lawyers to avoid liability for large claims in its Hospitality & Leisure Division. On our information, H&L had serious administrative issues, to the extent that they cannot identify which policy wordings were issued for their clients. They are currently arguing that the brokers who moved their books of business from previous insurers, did so to achieve less cover and more expensive premiums,” he explained.

ICA Board Chairman, Mike Gaines – who has a background in law – commented: “What is particularly galling is that Santam has always had a reputation for technical excellence. Yet they seem to have slumped in the basement with the BI claims.”

He asserted that the company was receiving bad legal advice and believes the Santam Board should take back control.

“We have proposed a sensible solution to their problem but this appears to be frustrated by their attorneys, and we have now taken the decision to correspond directly with the Santam Board and its major shareholders,” said Woolley.

Santam noted the statements made by ICA, telling Tourism Update that they contained a number of inaccuracies and false allegations.

“Santam views the statements in a serious light and will respond appropriately to the allegations. Santam assures its clients and all interested parties that it continues to expeditiously settle all valid claims in line with the policy wordings and conditions of cover,” said a spokesperson for the insurer.