Insurance industry body says most business interruption claims are being paid
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THE South African Insurance Association (SAIA) has come out in defence of short-term insurers (STI) being accused of making extraordinary profits out of the Covid 19 lockdown by maintaining premiums at pre-pandemic levels, getting re-insurers to pick up the tab and stalling on insurance payouts, especially to the hospitality and tourism sectors at the expense of crumbling businesses in the sector.
Recovery methods include looking at introducing legislation to enable litigants to claim more for damages incurred from delays in payouts than the amount the client is covered for to mitigate the damage wrought by delays by the short-term insurers.
According to research by public loss adjuster Insurance Claims Africa (ICA), which is pursuing at least 850 claims by businesses, short-term insurers increased unappropriated profits by more than 20 percent to a new record of R53.5 billion, total industry assets by 12 percent to more than R220bn, while suppressing the value of unpaid claims which rose by more than 17 percent to a record high of R49.4bn in 2020.
Thandukwazi Gcabashe, director of strategic communications at SAIA, said research commissioned by ICA during an uncertain time for the industry needed to be assessed and benchmarked against events prior to the pandemic, and it should factor in broader macro-economic conditions.
“SAIA confirms that large numbers of claims have been and are being paid by insurers. In a minority of cases, claims are complex and certain cases, such as some of those involving contingent business interruption (CBI) claims, still require legal certainty in respect of indemnity periods,” Gcabashe said.
ICA's research, conducted by Dr Roelof Botha, economic adviser to the Optimum Investment Group, and Keith Lockwood from the Gordon Institute of Business Science, revealed a disparity between the financial gains achieved over the past year by short-term insurers and their customers who, because of non-payment of claims, were desperate for any lifeline to allow them to survive and retain thousands of jobs.
ICA chief executive Ryan Woolley said they had positive interactions with Hollard South Africa and Old Mutual Insure, but came up against hurdles with Santam, which was working through its lawyers at Norton Rose Fulbright to avoid liability for large claims in its hospitality and leisure division.
Unlike long-term insurance, which experienced a decline of 39.4 percent in its current account income surplus, the short-term insurance industry segment recorded positive growth for virtually all of the key indicators of financial performance, with its current account income surplus increasing by 19.4 percent.
“Insurers need to stop green-washing their response to this crisis,” Woolley said.
Gcabashe acknowledged that certain non-life insurance classes of insurance lines might have performed better than others during the pandemic.
He said these included vehicle insurance claims, which have declined because of various lockdown regulations such as the curfew, while other insurance lines have been hard hit like the credit and trade credit, travel, engineering, and marine insurance sectors.
He said in the interim those insurers with exposure to CBI claims had either settled in full or made interim pay-outs to those policyholders affected.
“Insurers also have to take into account the terms and conditions of their reinsurance agreements to ensure they are supported by re-insurers, who require this legal certainty,” he said.
Woolley said insurers had over-estimated the impact of the pandemic had inflicted on the South African economy in 2020 which turned out to be less severe than generally anticipated, with a swift rebound occurring during the second half of 2020.
He said the STI earned record profits during the pandemic, and had no reason to further delay settlement of all outstanding Covid-19 business interruption claims.
Researchers said there was a decline of the claims ratio for STI during the first three quarters of 2020, namely to a level of 51 percent, compared to a significantly higher ratio of 63 percent for the same period in 2019, which represents the percentage of premium income which insurers pay out in claims.
It was reported that the value of unpaid STI claims rose by more than 17 percent to a record high of R49.4bn in 2020.
Santam and other short-term insurers who offered business interruption cover were the subject of litigation after last year they decided not to pay out for business interruption claims caused by the lockdown, arguing that while Covid-19 might be the “proximate cause” of businesses being forced to stop trading, the lockdown was an “intervening cause”.
Short-term insurers insisted the lockdown had stalled all business activity across all industries, irrespective of whether businesses had confirmed Covid-19 cases on their premises, and therefore it was an economic loss.
“There’s a distinction between economic losses and insured losses, a clear distinction between the two. It would not be fair to expect the whole insurance industry to underwrite the economic losses of the country,” Santam said in its arguments.
Gcabashe said SAIA's members in the non-life insurance industry had provided, among other offerings, premium holidays and premium discounts for policyholders, had fast-tracked claim processes and had limited the impact on staff, where possible, by protecting job losses.
“It is therefore manifestly incorrect to state that the non-life insurance industry has been ignoring its clients’ plight and failing or delaying payments. The non-life insurance sector is a complex and broad industry spanning many sectors,” he said.