Once upon a time, there were people who honestly thought that the South African private sector maintained higher standards of honesty and ethics than the country’s public sector. And then the Competition Commission, which was only created in 1998, began to blow the lid on bad corporate behaviour, on collusion, on abuse of power and position to exploit consumers. Not all of that behaviour was bad, of course; some of it was absolutely atrocious.
Who can forget the utterly revolting bread cartel? Highly paid executives conspiring together to artificially inflate the price of bread. Of bread! A basic staple for everyone, but most especially for the very poor. How could anyone be so greedy, so callous, so lacking in basic decency as to force up the price of bread? How could they sleep at night?
Scandal followed after scandal. From collusion to corruption. Companies using bribes to win contracts. External auditing firms which, strangely, never noticed massive corruption and theft within the companies they were auditing. And yet, despite all this, the news of the insurance industry’s refusal to honour business interruption claims from small and medium-sized enterprises (SMEs) in the hospitality and tourism sector still manages to shock. (I believe that, strictly speaking, we are dealing with the short-term insurance sector here.) In fact, it seems to me to be the most appalling abuse of corporate power since the bread cartel.
To recap: business interruption insurance is intended to help companies survive unanticipated events. It is intended to allow businesses to pay their staff, rates, rent and so on, and so survive a crisis. It can be for an agreed amount of money, or for an agreed period. Tourism and hospitality enterprises can specifically insure against business interruption caused by contagious or infectious notifiable diseases. The Covid-19 pandemic caused government to impose a national lockdown, which closed all hospitality and tourism operations, causing them to lose all their income. Most South African hospitality and tourism businesses are SMEs, even microenterprises. The sector provides more than 740 000 direct and 1.5-million indirect jobs and contributes 8.6% of the national gross domestic product. The Tourism Business Council of South Africa reports that the sector also provides business worth some R206.5-billion a year for its supply chain, acquiring goods and services from the agriculture, automotive, fuel, furniture, marketing, security and textiles sectors, among others.
But not only is it of enormous economic importance – it is of huge conservation importance. Privately owned bush lodges and game reserves play a critical role in preserving entire ecosystems and all the wildlife within them. They provide direct jobs and indirect jobs for local communities – rural communities, where jobs are scarce – ensuring legitimate alternatives to poaching. Many of these are also SMEs, family-owned, working cooperatively with each other and with the South African National Parks to maximise the country’s conserved areas, but dependent on tourists for their economic survival. If they go under, a major part of the country’s conservation effort immediately collapses. Rangers and trackers lose their jobs. Anti-poaching operations cease at once. Pro-conservation communities, out of desperation, are forced into becoming pro-poaching communities. It would be a conservation catastrophe as well as an economic one.
Nevertheless, South African insurance companies seem to be perfectly happy with this prospect. They have been claiming that the business interruption from which the hospitality and tourism sector has been suffering has been caused by the government-ordered national lockdown, and not by the pandemic. They have been refusing to pay out the claims of SMEs in this sector, who had taken out pandemic insurance. (According to Personal Finance content editor Martin Hesse, Outsurance is the sole exception and is honouring Covid-19 business interruption claims.)
The unethical evasiveness of the insurance companies is utterly revolting. But they have also displayed appalling irresponsibility and breathtaking stupidity. Their argument is transparently ludicrous. Without Covid-19, there would have been no lockdown. Thus, the business interruption was caused by the pandemic. After all, when pandemics happen, governments take emergency actions. Yet a small business, Café Chameleon in the Western Cape, had to take an insurance company to the Western Cape High Court and get a judgment spelling out the obvious. Why is one not surprised (but nevertheless enraged) that the insurer in question subsequently asked for leave to appeal the judgment?
Another large insurer has told its shareholders it can afford to pay all Covid-19 business interruption claims, but it has been refusing to do so, despite the Western Cape High Court judgment. If insurance companies can’t afford to pay out Covid-19 claims, why did they sell the insurance in the first place? I am not a lawyer, so I might be wrong, but wouldn’t selling insurance they could not afford to honour be nothing but fraud? Nothing but a crime, deserving of jail time?
The Financial Services Conduct Authority has also come down on the side of the policyholders. But most of the insurance companies seem, at deadline, to be dragging their feet very slowly indeed, almost as if they are hoping that many claimants – SMEs, remember, with very shallow pockets – will go under first, and so not need to be paid.
How stupid can the top executives of these companies be? Can’t they see they are not only destroying the reputations of their specific businesses but also of their sector as a whole? Who is ever going to trust them again? Do they seriously think that in the future they are going to keep the business of those surviving hospitality and tourism SMEs that they so atrociously betrayed? Do they really think their behaviour will be forgotten? Are they so complacent that they do not see that the survivors of this financial massacre will actively seek alternative sources of insurance? We live in the era of Fintech, of disruptive technology in financial services, including insurance. Can these executives not see that they have created a huge opportunity in the market for others to rush in and take their business away?
Down the millennia ring the words of the prophet Amos: “Thus says the Lord: ‘For three transgressions . . . and for four, I will not revoke the punishment; for they sell the righteous for silver . . . trample the head of the poor . . . and turn aside the way of the afflicted’”. The insurance sector is calling judgment down upon its own head, and no-one will mourn for it.