OPINION: Reputation of insurance industry is on the line

By Martin Hesse Time of article published Jul 13, 2020

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“We’re paying the highest tribute you can pay a man.
We trust him to do right. It’s that simple.”
– Harper Lee, To Kill A Mockingbird

Although laws and regulations are essential for the smooth running of the financial system, it is on trust that it stands or falls. 

We trust banks, for example, to be the custodians of our money. If all banks were to behave like VBS and simply steal our savings, there would be no banks; we’d all be stuffing our cash under the mattress.

Insurance companies are in a more delicate situation. You pay a regular premium in return for a promise: that if you suffer a financial loss under a given set of circumstances, you will be compensated.

If those circumstances do not arise (for example, you never have a break-in), the insurance company does not owe you anything, despite you having paid premiums possibly over many years.

What insurers have to manage is this: they must reasonably be seen to be upholding their side of the agreement. They cannot be perceived by most of their customers – or the public at large – as being reluctant to pay claims. If most people felt that way about a particular insurer, the insurer would go out of business. 

Generally, a bank cannot separate you from your money unless, as in the case of VBS, it clearly acts outside the law. But an insurance company can avoid paying you out and stay within the bounds of law, by finding a legal excuse to decline your claim.

Take, for example, a KwaZulu-Natal case I am following. 

An insurer has not paid out the beneficiary on the life of a man who was electrocuted in the course of his work. The insurer has given no reasons for not paying the claim, except that it is investigating the circumstances of the death. 

The man died three years ago, and a police report found that the death was accidental, but the insurer is still investigating... 

Statistics show that insurance companies pay out the vast majority of claims. It’s the cases in which the rejection of a claim is perceived to be unfair, and which get wide media coverage, such as the notorious Momentum-Ganas case of 2018, that dent their reputation and erode public trust.

Which brings us to the current business interruption saga brought on by the pandemic.

Despite a landmark judgment going against the insurer Guardrisk last week, Santam, among other insurers, has dug in its heels on compensating small businesses whose cover included notifiable diseases, essentially arguing that the policies were never intended to cover the economic collapse brought on by the lockdown.

This is very different from the odd isolated cases that have hit the headlines in the past. This is a whole class of cases that has the potential to irrevocably damage any trust South Africans have in the industry.  

The industry is afraid it will not be able to cope financially with the flood of claims. 

However, anticipating being overwhelmed by claims cannot in itself be a reason for declining them (as was nonsensically argued in the court case). This would be like hospitals refusing to treat Covid-19 patients, for fear of being overwhelmed. You’ve got to do what you’ve got to do, or at least as much as you can do. 

In fact, Santam has indicated that its balance sheet is robust enough to withstand anticipated claims, although that may not be true of all insurers.

The Financial Sector Conduct Authority has now stepped in on the side of the policyholders and will likely force the hand of the insurers. But it shouldn't have come to this.

Only one insurance company as far as I know, Outsurance, has voluntarily decided to honour these claims. 

It puts the rest of the industry to shame.


The shareholder activist organisation Just Share put out a blistering press release last week after attending Santam’s annual general meeting on Tuesday. An edited version of the statement reads as follows:

“When asked by Just Share whether it would reconsider its position in light of a recent judgment against insurer Guardrisk, Santam stood firm in its position that it will ‘seek clarity from the courts of South Africa’. The board also would not commit to a binding arbitration process to expedite the matter. This is surprising, given that the Western Cape High Court has provided legal clarity already, finding unequivocally in Café Chameleon v Guardrisk Insurance Company Ltd that the Covid-19 outbreak – not the lockdown – is the legal and factual cause of the claimant’s losses, and that the insurer must pay out the claims.

“Santam’s position is in stark contrast to chief executive Lizé Lambrechts’s statement on the company’s website that Santam is ‘absolutely committed to playing our part to help alleviate some of the devastating impacts of this virus’.

“Insurance Claims Africa (ICA), a public loss adjustment firm, is representing approximately 500 affected businesses. Collectively, the total value of their claims with all insurers involved is between R3.5 billion and R4bn.

“Many of Santam’s business continuity policyholders are facing imminent closure, threatening the livelihoods of the thousands of people employed by them. Santam has chosen to go to court to obtain ‘legal certainty’ in the interpretation of the disputed policies. Unlike the insurer and its immensely deep pockets, these businesses cannot wait months or years for the resolution of a court process. ICA has already approached Santam with a reasonable settlement proposal, but has been turned away.

“In a Sens announcement released [this week], Santam says that it ‘understands the financial distress on the businesses and individuals impacted by the national Lockdown to combat Covid-19’, and that it also recognises ‘the public interest in this matter and [is] therefore seeking legal certainty by having this matter speedily determined by the courts of South Africa’. It is hard to reconcile this with the company’s actions, which point to a complete lack of awareness of the impacts of its insistence on taking a lengthy, expensive legal approach.”

Emma Schuster of Just Share says: “At the start of the lockdown, we witnessed an outpouring of grand gestures and public commitments to corporate kindness by big companies. Santam was no exception. If there is legal ambiguity in the clauses of the policies held by these small businesses, Santam should take an approach which is in line with its public claims to care about the impact of Covid-19 on the South African economy and on its clients’ businesses. Instead, the company seems determined to take a short-sighted approach which is eroding its reputation, and which will contribute to the devastation of a swathe of the small tourism and hospitality businesses which are so essential to the economy.”


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