SA’s largest short-term insurer, Santam, pledged R1bn in relief for small and medium-sized leisure, hospitality and nonessential retail businesses as the insurance industry pushes back against paying out claims related to Covid-19 business disruptions.
Santam is embroiled in a legal battle with Western Cape-based hotel group Ma-Afrika Hotels, which is claiming payments for business interruptions due to the lockdown. Earlier in July, Santam opposed an application brought against it in the high court in Cape Town, with a court case set for September 1.
Santam’s decision to make the payment came after an agreement between insurers and regulatory authorities to make interim relief payments amid a rise in business interruption cover claims as a result of the lockdown.
Santam said in a statement on Sunday that it would pay up to R1bn in relief to policyholders who have the contingent business interruption (CBI) extension in their policy cover, with payments expected to start in the first week of August.
Payment commitment
"After careful consideration of the situation, especially the unforeseen length of the lockdown and the ongoing restrictions that are impacting businesses, we decided to assist with a substantial payment commitment to help sustain our policyholders in the most impacted industries," said Santam CEO Lizé Lambrechts.
The R1bn represents 70% of what Santam policyholders in the leisure, hospitality and nonessential retailers industries are insured for over two months. This indicates the period when SA remained under lockdown levels 4 and 5, which entailed hard restrictions on businesses.
The payments will be set at a minimum of R25,000 and as much as R1.5m for individual policyholders.
Santam said it was important for the court case to continue despite the payments as it would provide legal certainty on the interpretation of the CBI policy cover. The relief payment will not affect its quest to seek legal certainty on the policy.
"We hold a firm view that our CBI policy wording is very specific and only covers businesses for interruptions as a result of the outbreak of a disease at a local level or within a specified radius," said Lambrechts.
Insurers came in for criticism for rejecting business interruption claims as the virus wreaked havoc across industries, with small and medium-sized businesses being the hardest hit. An estimated 3-million jobs have been lost.
The Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) said on Friday that an agreement had been reached with non-life insurers over business interruption cover claims.
The FSCA and PA said insurers would consider interim relief payments to affected policyholders while they sought legal certainty regarding the claims.
"While the interim payment could provide some relief for these businesses, it will be critical to understand what this relief will entail," CEO of Insurance Claims Africa Ryan Woolley said.
"From what we have seen thus far, it appears that the size of the interim relief is a small percentage of what the claimants are owed. To term this a lifeline would be an exaggeration," he said.
The regulatory authorities said that the payments would be one-off to help small businesses and industries that have been largely affected by the lockdown.
"It is clear from the statement that regulatory authorities were also deeply concerned about the long-term reputational damage that insurers’ unconscionable behaviour is 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," Woolley said.
Hollard Insurance said in a statement on Saturday that it would pay policyholders with contagious disease extensionsto their business interruption policies.
"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 Hollard Insurance’s Willie Lategan.
"We are thus making these payments now, irrespective of the outcome of the legal process."
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