With some short-term insurers offering limited payouts on business interruption claims, a group representing about 850 leisure claimants believes the sector is ripe for disruption by new and existing players.
Speaking this week after a media update on business interruption claims, Insurance Claims Africa (ICA) CEO Ryan Woolley said customers whose trust had been damaged may look for alternative suppliers of insurance. Asked if any of its clients intended leaving their current insurers once their cases had been settled, he replied: "Absolutely."
Citing OUTsurance as a group that could gain market share, Woolley said the company under CEO Danie Matthee had set a great example by paying contingent business interruption (CBI) claims immediately.
"Look at the goodwill that Danie Matthee from OUTsurance generated when he was the lone insurer that said he would pay claims. In South Africa we are a forgiving country, but at some stage I can see a restaurant that is being messed around by an insurer saying it needs to move its business."
ICA said some short-term insurance companies continued to stall on business interruption insurance payments to tourism and hospitality businesses, even as they made "super profits" and despite these payments being crucial to the survival of businesses and the retention of jobs. ICA said short-term insurers were also covered by re-insurers.
I can see a restaurant
— Ryan Woolley, CEO of ICA
messed around by
an insurer saying it
needs to move its
business
The ICA update also presented research by Roelof Botha, economic adviser to the Optimum Investment Group, and Keith Lockwood of the Gordon Institute of Business Science, which shows that accumulated "unappropriated profits" rose to reach R53.5bn in 2020, a "new record". Year on year this represents an increase of 20% from 2019. An accumulated profit refers to the retained earnings over time.
Their research also shows that the total short-term insurance premiums received by the industry increased 2.2% year on year to more than R130bn in 2020. The claims paid in the same period increased by 5.8% year on year, but Botha told Business Times that though this was a higher percentage than the premiums-received figure, it was off a much lower base than the previous year, and that the gap between premiums received and actual payouts had "become bigger".
The report says that "arguably the strongest vindication of ample scope for settling" CBI claims without delay is the decline of the claims ratio for short-term insurers during the first three quarters of 2020 to 51%, compared to a "significantly" higher ratio of 63% for the same period in 2019. This ratio "represents the percentage of premium income which insurers pay out in claims".
Woolley said ICA had "at the very outset" presented short-term insurers with "sensible compromise solutions to these claims. If their actuaries had just done the maths, forecasting how much money they would make in all these lockdowns, with people staying at home and driving less etc, they wouldn't even have had to go to reinsurers, they could have settled the claims themselves."
Ashburton chief investment officer Patrice Rassou said OUTsurance's prompt payout of Covid-related business interruption claims would definitely help it secure more customers in the future, possibly at the expense of other insurers. "Definitely for OUTsurance, for business [insurance] is a big growth sector, and this has positioned them well in the market."
He said business interruption cover was a "key contentious issue" and it was "disappointing that companies that pride themselves on their service are coming short".
Rassou said though contracts in place are "sometimes not 100% clear", it has been damaging to not honour their promises as these sorts of missteps create opportunities for "newcomers to grab market share".
FNB portfolio manager Wayne McCurrie said those that paid out quickly could gain market share and positive publicity. However, he doesn't believe the insurance sector as a whole will experience major disruption as it has already "gone through a major shake-up with the entry of the likes of OUTsurance and other online insurers" that cut out intermediary brokers.
He said while short-term insurers are entitled to "enforce the terms and conditions" of their contracts, he has "no doubt the short-term insurance industry, no matter what the terms and conditions of their contracts stipulate, will ultimately pay. They will pay because they have to maintain good PR. All life insurers are essentially selling organisations, and their status in the market is critically important to them."
OUTsurance's Matthee said their "decision to pay out" R220m to about 150 claimants was made "without any consideration of a halo effect for the brand" but "from a brand perspective" there has been goodwill generated by it.
"The fact is, contractually this was covered in the claims we paid and we thought we were doing the right thing," he said.
About other short-term insurers, Woolley said "we are finding insurers are adopting long, overly pedantic processes and doing everything in their power, it seems, to delay payments" or limit the quantum. He said ICA had had "positive interaction" with Hollard SA and Old Mutual Insure, but "with Santam, the process continues to be frustrating".
"Santam is working through its lawyers to avoid liability for large claims in its hospitality & leisure [H&L] 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."
Santam said ICA's statement about it "contain a number of inaccuracies and false allegations" and it would "respond appropriately to the allegations" but declined to elaborate. It said it "continues to expeditiously settle all valid claims in line with the policy wordings and conditions of cover".
Old Mutual Insure MD Garth Napier said ICA's research presented a "gross view of industry results and ignores the cost of reinsurance, commission and expenses".
He said Old Mutual Insure had an underwriting loss of R250m in 2020, which was "significantly down on the profit of R35m in 2019. We only managed to increase our premiums by 1% during the period."
He said Old Mutual Insure had provided R5bn to settle CBI claims and that to "date we can confirm that we have made over 300 payments valued at approximately R500m related to CBI claims, ranging from relief payments [and] interim payments [to] final payments". He said "due to the complexity in assessing the quantum" a business interruption claim takes several months to finalise, but that its Covid-19 specialist claims team was "committed to [finalising] all remaining claims as speedily as possible".
Hollard SA said following "the legal clarity obtained in December" it had "assessed claims according to their merits and paid out in a significant number of cases". It continued to "engage" with its brokers and clients and organisations such as ICA "where they are mandated by clients" through a dedicated facility for the assessment of Covid-related business interruption claims.
The South African Insurance Association (SAIA) said it was "manifestly incorrect" to say the non-life-insurance industry has been ignoring its clients' plight and failing or delaying payments".
"SAIA confirms that large numbers of claims have been and are being paid by insurers. In a minority of cases, claims are complex and in certain cases, such as some of those involving CBI claims, still require legal certainty in respect of indemnity periods. In the interim, those insurers with exposure to CBI claims have either settled in full or made interim payouts to those policyholders affected," it said.
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