It began as level five and four lockdowns slammed the pause button on profitability for numerous South African businesses. Industries such as the hospitality sector have been particularly hard-hit, with a loss of around R72-billion, according to the CEO of the Tourism Business council of South Africa. Many companies put in claims to their insurance providers to cover the business interruption caused by the pandemic and consequent national lockdown.
Business Interruption Claims for the Lockdown Period
Unfortunately, many of these claims were rejected, and what followed was a series of court cases. Large insurance providers like Santam and the Guardrisk group found themselves facing an onslaught of cases disputing rejected business interruption claims. According to Asher Grevler, the Chief Risk Officer of Santam, they cover businesses for interruptions due to a pandemic on a local and not national level.
Santam will pay out when COVID-19 directly affects an insured party, for example, if an employee at a workspace becomes infected and it must consequently close for a period. In this way, Santam has paid out a few claims, although many were rejected. Not all insurance companies view the issue in the same way. OUTsurance, a much smaller contributor to the business interruption market, is paying out claims to business interruption clients.
OUTsurance Head of Client Relations Natasha Kawulesar explains that claims are settled not due to lockdown but because of the impact the outbreak of COVID-19 has had on the country and their clients’ businesses. They have decided to cover their clients for the period where their turnover has dropped until the end of their indemnity period or until the business reaches pre-incident turnover levels.
The Test Case for How Claims Should Be Addressed
Many agree that the uncertainty in the market needed to be addressed, heralding the latest developments. Loss adjusters like Insurance Claims Africa worked at reaching a reasonable compromise between insurance providers and those insured for business interruption due to a pandemic. Others awaited the findings in what they view as a test case for the dispute between insurance providers and those insured for business interruption due to a pandemic.
In the case between Café Chameleon and Guardrisk, the insurance company argued that losses to the café were due to the government-sanctioned restrictions on business. It was found by the court that even though the government had sanctioned the restrictions on business during the national lockdown, the lockdown was clearly caused by a notable disease of the sort the insured covered. Guardrisk even admitted during the case that COVID-19 had come within 50 kilometres of Café Chameleon’s premises, making it hard to deny the connection between the outbreak and the Café’s losses.
The problem is that the grand scale of claims and the unknown length of time that claims could affect business insurance providers make it difficult to estimate the kind of financial stockpile insurance providers will need in order to adequately cover these losses. That said, insurance providers have not ignored the plight of South Africans. After a meeting with the FCSA, many of the largest South African Insurance providers have agreed to a payout arrangement. The Financial Sector Conduct Authority ordered insurance providers not to broadly reject claims, siding with the findings in the case between Chameleon Café and Guardrisk.
What are South African Insurance Providers Doing About Business Interruption Claims?
Guardrisk has agreed to payouts for companies insured with them for business interruption due to a pandemic who instituted claims when only essential services could operate. They confirmed that they would be sending the details of the offer to their policyholders, who would then have the option of accepting the offer or awaiting the results of their appeal case. Guardrisk still believes their interpretation of the policy wording remains accurate and that it does not trigger a claim simply due to lockdown. They have decided to proceed in appealing the Cape Town court ruling made against them to obtain clarity for the industry.
Santam and Hollard agreed to offer one-time relief payouts for clients who were hard hit by the five weeks of complete lockdown starting on 27 March 2020. If you’re uncertain whether your insurance provider is paying out a one-off sum or fully covering claims due to business interruption during the lockdown, you can contact them directly for details.
DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.
Sources: businessinsider; dailymaverick; bizcommunity; news24