BUSINESS MAVERICK

SA’s largest business insurance companies promise over R1bn in relief payments

By Sasha Planting 27 July 2020

Parties have agreed to interim relief for the restaurant and hospitality industry that will be a once-off payment to policyholders, and will not have to be paid back by claimants, regardless of the outcome of legal processes that are currently under way. (Photo: Nadine Hutton / Bloomberg via Getty Images)

Whether pushed, cajoled or of their own volition, South Africa’s big insurers have come to the table on the subject of business interruption insurance for the restaurant and hospitality industry.

South Africa’s largest business insurance companies including Santam and Hollard have agreed to provide interim relief to clients with business interruption insurance that includes cover for contagious diseases.

This brings hope to the thousands of restaurant and hotel owners who face financial ruin following the lockdown of their industry as a result of the Covid-19 pandemic.  

“This is good news. The insurance companies have turned around and realised that we are partners,” says Dumasi Mfugale, owner of The Foundry Restaurant and Bar in Parktown North.

“What they are offering may not be sufficient, but at least it’s a start.”

Restaurants, hotels and lodges have been locked in an intractable dispute with their insurers over the validity of their business interruption claims, which have largely been rejected by the industry. 

While several court cases are in the works, the first out of the blocks saw Cape Town restaurant Cafe Chameleon challenge its insurer, Guardrisk, over the latter’s refusal to pay out based on its interpretation of the cover. The court found in favour of Cafe Chameleon, though this judgment has been appealed.

The prospect of a lengthy lockdown and even longer court disputes galvanised the insurance industry, the Financial Sector Conduct Authority (FSCA) and the Prudential Authority to find common ground after the FSCA weighed in on the subject in June and again in early July.

The regulator had expressed concern at the impact of the repudiation of contingency business interruption cover claims by some non-life insurers, as well as the delays in processing policyholders’ claims. 

In addition, it is increasingly concerned at the reputational damage the dispute is bringing upon the non-life insurance industry.

The parties have agreed to interim relief that will be a once-off payment to policyholders, and will not have to be paid back by claimants, regardless of the outcome of legal processes that are currently under way. This payment will also not affect the overall quantum of claims. 

If the court process rules in favour of policyholders, this payment will be deducted from the full amount due to claimants.

Santam, South Africa’s largest short-term insurer, will pay up to R1-billion to policyholders with the required cover.

This equates to 70% of two months’ value of the sum insured for Santam’s policyholders in the identified industries. The two months is specifically the period where most businesses were affected by the restrictive trading environment imposed by the Level 4 and 5 lockdown.

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 and a maximum of R1.5-million for individual CBI policyholders.

“We have been watching the decimation of the hospitality and small business sectors with horror,” says Lizé Lambrechts,  Santam Group CEO. “Naively, we thought businesses would be trading by now; we have been taken by surprise by how long it is taking. We recognise that our clients need money now – they cannot wait.” 

This relief payment does not impact the insurer’s efforts to obtain legal clarity on its policy interpretation through the courts.

Hollard’s proposal to regulators will see it providing financial relief to more than 1,000 businesses across all industry sectors, as it attempts to alleviate some of the financial burden created by the Covid-19 pandemic.

The matter of Ma-Afrika Hotels versus Santam is set down for hearing in the Western Cape High Court on 1 September, and will be heard by a full bench of three judges.

“We remain of the view that nationwide government closures or lockdowns are not insurable risks and we believe that legal certainty regarding lockdown-related claims is urgently required,” says Willie Lategan, CEO of Hollard’s short-term business unit.

“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. We are thus making these payments now, irrespective of the outcome of the legal process.”

Hollard’s proposal to regulators will see it providing financial relief to more than 1,000 businesses across all industry sectors, as it attempts to alleviate some of the financial burden created by the Covid-19 pandemic.

Ryan Woolley, CEO of ICA, the public loss adjustment company that is representing over 600 businesses in the tourism and hospitality sector in their battle to get large insurers to pay out on Covid-19 Business Interruption insurance claims, is cautiously optimistic.

“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.

“We are pleased that the regulatory authorities have emphasised to insurers that such a settlement be fair so that these vulnerable businesses are not further taken advantage of. The regulatory authorities have instructed insurers to ensure that the settlement is clearly explained in writing should a policyholder wish to accept a settlement on this basis.”

This is echoed by Rob More, CEO of the More Group, whose portfolio includes Lion Sands, Madikwe and the Cape Cadogan Boutique Hotel.

“It is great to see Santam coming forward, which for us means they accept some form of liability, they value their reputation and at the same time understand accountability. 

“The devil will be in the detail, but we are grateful to them for entering the discussion especially at such a dire time for the tourism industry. It is a great shame our government does not share the same values and continues to offer nothing to the industry to survive off.”

The interim relief to be provided will differ from case to case dependent upon reinsurer support, financial impact and the number and types of policyholders. BM/DM

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