Business interruption insurance claim rejections

Listen to Wendy's Knowler's report or read the details below:

In South Africa and abroad insurers have declined their hospitality client’s lockdown-related claims, arguing that, in the words of Santam, “The scope of cover is intentionally restricted - it was never the intention of the extension to provide cover for a pandemic event affecting the whole of South Africa.

“We provide cover for a business that is shut down directly as a result of a contagious disease.”
“If we were to charge premiums based on the risk of a national lockdown or any form of mass governmental action, then insurance would be unaffordable.”

The Financial Sector Conduct Authority (FSCA) appears to agree: “(We) are of the firm view that the national lockdown was not intended and cannot reasonably be interpreted to be a trigger for BI insurance cover claims,” the regulator said earlier this month. 
Many insurers got their clients - who were not forced to close as a direct result of a specific Covid-19 case - to spend months jumping through hoops, proving an outbreak within 50km of their establishments, and submitting their financials, only to send them a standard rejection letter.
A broker told me last week: “My client took a R180 000 loan against his house to keep his restaurant afloat, in the hope of some settlement, given the initially positive tone of our engagements with the insurer, only to be told he’s not getting a cent.”

But Outsurance broke ranks. It revealed last week that it’s been honouring those claims since April.

They’ve approved 135 of them so far, with a total payout of R37 million. In all, R220 million has been reserved by Outsurance for the settlement of its business interruption claims - those that had the contagious disease extended cover, that is.

Outsurance’s contagious disease policy wording is very similar to those in the business interruption polices of  the big players such as Santam, Bryte, Old Mutual Insure, One, Guardrisk - “An outbreak of an infectious or contagious disease occurring within 50 kilometres of the business”.

“Our view, from the onset of the pandemic,” said CEO Danie Matthee, “is that they are covered (by the policy wording) and we needed to get cash to the businesses with the right cover in place as soon as possible. 

“We understand cashflow is king for small and medium businesses and we are pleased that we could be of assistance to our clients in this time of need.” 

Payments are made to establishments every month and will continue for either the full indemnity period or once the business turnover is at pre-incident levels, whichever occurs first. 

I attended a Zoom press conference hosted by Insurance Claims Africa, which has more than 7500 claimants and the Tourism Business Council and two affected hotel owners.  

The presser was very emotional - the two hotel owners - Meg Fargher of Budmarsh Country Lodge in Magaliesburg and William van der Riet of Cathedral Peak Hotel in the Berg, which has been owned and run by the same family for the past 81 years.

They seemed close to tears when telling how the refusal of their insurers to pay their BI claims (Santam and HIC). They have 80 and 200 staff respectively and are heavily involved in supporting their local communities.  

William van der Riet: “The emotional toll is extremely heavy. Been at the hotel more than 40 years.. Tragedy that such a dream could come to an end. Financially - dire. Our overheads are R800K to R1mill a month. Still have to pay medical aids, UIF, security, insurance. Yes we did have some payment holidays but they are kicking in again and we still don’t have an income and we still don’t know when we will have an income…. the future is extremely worrying. We lie awake at night wondering where the next money is going to come from. I have put my personal money into the business. We owe R7 to R8million and we have maxed out our credit. We can probably only survive for another month or 6 weeks. So I honestly can’t say where to from here…unless we get help..”

TERS payments about to run out, and there’s no other tangible financial help.

Both hotel owners said they were initially led to believe their claims would be paid out, and then strung along for six weeks and three months respectively, being told to submit more and more documentation before being rejected.


Tshifhiwa Tshivhengwa, CEO of the Tourism Business Council: Was very outspoken - didn’t pull his punches. Business Insurance claims have been rejected, TERS payments are over, leisure hospitality within provincial borders is not allowed… We are being put into a corner and something is bound to happen. I starting to admire the taxi industry for the way they make things happen.
We have played by the rules, even when they make no sense, but it’s come to the point where we have to take drastic action.. Something is going to give and it’s not going to be nice.”

The devastation will affect a very long value chain in many sectors - including vehicle manufacture, agriculture, car hire, fuel,  textiles -towels, linen, blankets, duvets, décor fabrics, uniforms-, furniture, crockery, cutlery & kitchen equipment, cleaning products and guest supplies etc.), and services such as banking, security, marketing, laundry, cleaning, catering

What is happening now is spitting in the faces of these company which have been paying their premiums for many years.

It is time for them to show up. They are acting like some sort of pyramid scheme now - collecting money with no intention of paying out.

Ryan Woolley, CEO of Insurance Claims Africa:  We have more than 7500 claimants with valid claims.. against Bryte, Santam, Old Mutual Insure, Guardrisk…

Our view is that the claims are being very unfairly rejected

- The insurers are holding firm, saying, essentially, that pandemics are not an insurable event. The policy wording did not exclude a pandemic and we expect the courts to agree.
Looking a class action.  Been in talks mostly with Santam and HIC  - Santam has agreed not to delay getting this to court, but they may have a different concept of urgency.

We implore the boards and the shareholders of those insurers to take a long hard look at themselves and ask: “Should we be doing this?” They must get their re-insurers to come to the party.

- We understand that paying claims in full - the quantum of the 7500 claimants claims is R3.5 - R4billion - but we could have compromised, accepted the imposing limits such as paying out for just three months, or paying a lump sum  upfront and then paying the rest over time, which would save many businesses

BACKGROUND

No-one saw it coming.

As the hospitality industry reeled from the news that the business interruption policies - even those with “contagious disease” cover - would not cover their massive Covid-19 lockdown-related losses  - Outsurance revealed that it’s been honouring those claims since April.

They’ve approved 135 of them so far, with a total payout of R37 million. In all, R220 million has been reserved by Outsurance for the settlement of its business interruption claims - those that had the contagious disease extended cover, that is.

Outsurance’s contagious disease policy wording is very similar to those in the business interruption policies of the big players such as Santam, Bryte, Old Mutual Insure, One, Guardrisk - “An outbreak of an infectious or contagious disease occurring within 50 kilometres of the business”.

In South Africa and abroad insurers have declined their hospitality client’s lockdown-related claims, arguing that, in the words of Santam, “The scope of cover is intentionally restricted - it was never the intention of the extension to provide cover for a pandemic event affecting the whole of South Africa.

“We provide cover for a business that is shut down directly as a result of a contagious disease.”
“If we were to charge premiums based on the risk of a national lockdown or any form of mass governmental action, then insurance would be unaffordable.”

The Financial Sector Conduct Authority (FSCA) appears to agree: “(We) are of the firm view that the national lockdown was not intended and cannot reasonably be interpreted to be a trigger for BI insurance cover claims,” the regulator said earlier this month. 
Many insurers got their clients - who were not forced to close as a direct result of a specific Covid-19 case - to spend months jumping through hoops, proving an outbreak within 50km of their establishments, and submitting their financials, only to send them a standard rejection letter.

A broker told me this week: “My client took a R180 000 loan against his house to keep his restaurant afloat, in the hope of some settlement, given the initially positive tone of our engagements with the insurer, only to be told he’s not getting a cent.”
And then Outsurance broke ranks.

“Our view, from the onset of the pandemic,” said CEO Danie Matthee, “is that they are covered (by the policy wording) and we needed to get cash to the businesses with the right cover in place as soon as possible. 
“We understand cashflow is king for small and medium businesses and we are pleased that we could be of assistance to our clients in this time of need.” 

Payments are made to establishments every month and will continue for either the full indemnity period or once the business turnover is at pre-incident levels, whichever occurs first. 
The average payment is just over R400 000.

“We started paying claims in April for March losses and by late April where clients had not claimed and had the appropriate cover, we, in fact, started calling them to help submit claims,” Matthee said.

Most of the claims were by clients in the hospitality industry with a small percentage being in retail, mostly beauty salons.
Will Outsurance now remove that contagious disease cover from its policies, as other insurers have?

“The intention of the cover was never to cover a global event such as this and although we have not removed the cover, we are reviewing it,” Outsurance told me.

A Cape Town backpackers lodge owner who had his business interruption claim rejected by another insurer made an interesting point: “The insurers very quickly put their minds to changing our policies going forward from July 1 to say they would not cover any COVID related illnesses. 

“Does that not make one think that they thought they were actually liable to pay us out - otherwise why bother to change their policy wording?”

Will Outsurance’s stance cause problems for the rest of the industry?

One of the brokers I spoke to fervently hopes so. “The Outsurance decision is clearly not binding on the other insurers but should create a challenge for the others who are reading into their policies that the outbreak, even if proved to be within the stipulated radius, must be the direct cause of the BI.

“There is no fine print, qualification or definition in the policies that requires this direct causation to be shown or proved,” he said.

On Thursday Lee Zama, CEO of the Federated Hospitality Association of Southern Africa (Fedhasa), called on insurers to reach a settlement with claimants, rather than pursue a legal strategy through the courts, which will take months, and in some cases, years to resolve.  

Failing this, Zama calls on the ministers of Finance and Tourism to intervene urgently.
“We have seen the pandemic wreak havoc in the hospitality industry, with hundreds of businesses and jobs already lost forever. 
“What these businesses urgently need is cash to pay salaries and fixed costs, otherwise more businesses will be forced to close, and more jobs will be lost.”

With so much as stake, it's shaping up to be quite a showdown. 

Inevitably, some insurance players are describing Outsurance’s stance as a marketing ploy, but I daresay those who are benefiting from it don’t care one bit.