Insurers refuse to pay tourism businesses, claiming lockdown, not Covid-19, influenced loss
The tourism and hospitality sector is facing an imminent sustainability crisis as insurance companies reject claims related to the Covid-19 pandemic, for which many policyholders believe they are covered under their Business Interruption (BI) extension.
Insurance Claims Africa (ICA), a specialist public loss adjustment firm, has over 400 claimants in this sector against many insurers.
In a press statement, ICA said the company was in discussions with leading insurance companies to reach a sensible settlement for these businesses who face imminent closure. It could turn to court if discussions are unsuccessful.
ICA is also engaging with the Financial Services Conduct Authority (FCSA), the market conduct regulator for the financial services industry. It hopes that the FSCA will act in the interests of the policyholders who desperately need the policy payouts due to them, to support their staff and meet their fixed costs.
How it all started
The tourism and hospitality sector sustains over 740 000 direct and 1.5 million indirect jobs. In 2018, the sector contributed billions of rands to the South African economy. Since March 2020, when the Covid-19 outbreak occurred and the national lockdown was enforced, the industry suffered tremendous losses, some were forced to close their doors permanently. Exacerbating the crisis is the government’s current position that the sector will only fully open in February 2021.
As losses deepened, many of these businesses turned to their insurers to trigger their BI policies, but claiming had been a daunting process.
BI insurance exists to help companies survive following an unanticipated event. There are generally two types of BI insurance: a basic policy which requires physical damage to the business premises to trigger a claim, and a Tourism / Hospitality policy that contains a specific extension that includes interruption by infectious or contagious notifiable disease.
Covid-19 qualifies as a declared notifiable disease, but insurers claim that government regulations in respect of the lockdown are the cause of the loss, not Covid-19. This has been something that has been challenged as without Covid-19, there would be no lockdown.
ICA believes that insurers are, in effect, penalising their customers for their poor underwriting skills, acting in poor faith and are in breach of the ethical codes and standards that guide the insurance industry, especially where it concerns Treating Customers Fairly (TCF) regulations.
Ryan Woolley, chief executive of Insurance Claims Africa said it was unconscionable that businesses in one of the most vulnerable sectors were being put through such a traumatic and debilitating experience. “Internationally, several global insurance companies are settling their customers’ BI insurance claims on a compromise basis. Locally, we are working on a similar strategy with insurance companies whom we urge to work with us to find a mutually beneficial way forward.
“While local insurance companies are resisting claims because of the negative impact it will have on their profits, the insurance company’s financial statements show that they do have the means to settle these claims on a compromise basis without assistance from reinsurers.
“We urge insurers to enter discussions on the understanding that their actions could determine the future sustainability of much of the tourism sector in South Africa. The pandemic requires an ethical response from all partners, including insurers,” said Woolley.