The “Looting” of VBS Mutual Bank had unintended consequences when it affected the 1000 members of the South African Motor Body Repairers’ Association (Sambra), which, after discussions with the South African Insurance Association (SAIA), has implemented a pay-before-release policy.
Sambra’s national director, Richard Green, said pay-before-release had become necessary to protect member businesses and their cash flow from insurer failure and poor payment administration by insurers.
A contributing factor was the liquidation of Nzalo Insurance, which was acquired by Vele Investments, VBS Mutual Bank’s main shareholder. The bank went under curatorship, and a liquidation order was granted for Vele Investments. Last year, Nzalo, a subsidiary of Bophelo Insurance Group, assured its customers, “in particular members of Sambra, that it plans to settle all valid claims once its financial position improves following a few months of cash flow challenges”.
Nzalo outsources most of its services, so when its major premium collector, Bophelo Insurance Group, was put under curatorship, it caused severe cash flow constraints for Nzalo, leading to its “inability to pay claims timeously”.
Motorists do not deal directly with the insurer but through brokers or agents, who authorise claims on behalf of the insurance companies, provided they have a binder agreement in place.
“The motor body repair industry accepts these authorisations and completes the work before any payment is received, based on trust-based relationships with insurer business partners,” Green said. But the industry is under a lot of pressure because of non-payment or delayed payments - Nzalo is one example where Sambra members were not paid for work that had been authorised.
“Sambra engaged with SAIA and the short-term insurance industry to find ways to mitigate the effects of non-payment. However, there were no effective suggestions, which forced us to introduce pay-before-release. All other sectors of the motor industry exercise the right of lien and get paid before they release a vehicle. Until now the motor body repair sector has been the only one that has not exercised its right of lien over the vehicles they have repaired,” Green said.
The Nzalo matter was preceded by that of SaXum Insurance in 2016. The Financial Services Board, now the Financial Sector Conduct Authority (FSCA), applied to put SaXum into liquidation because of “financial irregularities”. Three years later, the liquidation still hasn’t been finalised, with the final lodging of the liquidation and distribution account unlikely to happen before the end of next month.
Green said delayed payments cost body-repair operators at different levels. “Any small business lives and dies by its cash flow. Insurer intermediaries pay late and still deduct turnover-based settlement discounts. The loss is massive and accounts for many millions. No formal data is available but businesses have collapsed as a result of not being able to pay the bills, and the cost of that to employers and employees is crippling.”
He suggested that Personal Finance find out from the FSCA if it knew of the imminent demise of Nzalo and what action it took, if any, to protect the industry.
Caroline da Silva, the FSCA’s divisional executive of regulatory policy, said the liquidation of Nzalo was preceded by a curatorship application, which was brought by the Prudential Authority. “The supervisors became aware that the challenges facing Nzalo could not be solved through curatorship and that liquidation was going to be the next regulatory step. The FSCA’s mandate is to protect financial customers. It has no jurisdiction over the repair industry,” she said.
Green does not believe its pay-before-release policy will drive people to backyard panel beaters. “Insurers cannot afford to send people to these businesses - the potential loss of clientele would be too great. If clients go to an accredited motor body repairer who is part of Sambra and the Retail Motor Industry Organisation, they can be assured of good-quality workmanship and in the event the job is not completed to acceptable standards, they have recourse,” he said.
The policy will not apply to insurer agreements where Sambra has a signed service-level agreement which stipulates payment terms, Green said. “Consumers should check the credentials of the body repairer and insurer with Sambra or SAIA before making their choice,” he said.