Specialist public loss adjustment firm Insurance Claims Africa (ICA) on Wednesday expressed the hope that South African insurance companies will now honour business interruption insurance claims submitted by their clients, to cover losses suffered as a result of the Covid-19 pandemic. On July 9 the Financial Services Conduct Authority (FSCA) instructed insurance companies to pay such claims and made it clear that it would take action against those insurers who did not give their customers fair treatment.
Business interruption insurance was intended to help companies survive unanticipated events. It was meant, ICA explained, to allow businesses to pay their staff, rates, rent and so on, and so survive a crisis. It could be for an agreed amount of money, or for an agreed time period. Tourism and hospitality enterprises could specifically insure against business interruption caused by contagious or infectious notifiable diseases.
However, South African insurance companies have been claiming that business interruption has been caused by the government-ordered national lockdown, and not by the pandemic. But on June 26 the Western Cape High Court ordered insurance company Guardrisk to pay the business interruption claims of Cape restaurant Cafe Chameleon. The Court ruled that the business interruption was caused by the Covid-19 pandemic, because that had caused the lockdown. (Guardrisk announced on Tuesday that it was going to seek leave to appeal the judgment.)
The ICA has been representing more than 500 small and medium-sized tourism and hospitality sector enterprises in their struggle to get the major insurance companies to pay out their business interruption claims. ICA has proposed that a fair offer from the insurers would be for them to pay out 50% of the claim upfront and then pay out the rest over a period of time.
“Fairness and responsibility need to be the guiding principles that drive a settlement negotiation with insurers, they cannot be allowed to exploit the vulnerability of these fragile businesses, many of which are already on their knees,” affirmed ICA CEO Ryan Woolley. “We should always remember that there is little incentive for insurers to resolve these claims swiftly. This is because in terms of insurance contracts, the claims are extinguished if the claimant’s business ceases.”
ICA has requested the Minister of Finance, in writing, to act urgently to facilitate potential settlement negotiations. More than 600 000 workers within the tourism and hospitality sector (out of a total of some 740 000, not counting indirect jobs) have applied for the Temporary Employee Relief Scheme of the Unemployment Insurance Fund. This scheme ended last month, meaning that the unemployed workers in this sector would no longer receive any income. Failure by insurance companies to pay business interruption claims would lead to many businesses in the sector failing and worsening the jobless crisis, ICA pointed out.