Lockdown claims are capped and won't cripple insurers, say claimants

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Santam says given what is at stake, it and its reinsurers that the matter must go to the next stage in the process to obtain legal certainty from a higher court.
Photo: Gallo Images/Jacques Stander
Santam says given what is at stake, it and its reinsurers that the matter must go to the next stage in the process to obtain legal certainty from a higher court. Photo: Gallo Images/Jacques Stander
  • The Federated Hospitality Association of Southern Africa members say their business interruption claims are not as material as insurers say.
  • In many policies, the claims are capped at 5% annual turnover and are for the period in which businesses recorded such revenue losses.
  • They say the tourism industry which had notifiable disease clause designed specifically for the sector are not trying to shift economic losses to insurers.

Hotel and other hospitality establishment owners, whose lockdown claims remain in limbo as insurers await a Supreme Court of Appeal decision, say many of them may not live to see the end of the biggest case in SA's short-term insurance's recent history.

Robert More, founder of More Family Collection who started the petition that is urging insurers to find a compromise and settle with the business interruption clients instead of going through the lengthy court process to avoid mass closures of tourism businesses, said on Monday that they are not asking insurers to take all the risk. He was speaking at the Federated Hospitality Association of Southern Africa's (FEDHASA) media briefing on Monday.

More's petition has to date attracted over 10 000 signatures. He said he had no choice but to start the petition because numerous attempts to present the More Family Collection's case on how the claims would not cripple insurers fell on deaf ears.

Not going to cripple the industry

More said the claims of most policyholders were nowhere near what they've lost during the lockdown and thus the notion that the industry is trying to shift its economic risk to the insurance sector could not be further from the truth.

"There is a limit to the quantum of the claim…Percentage wise, it is capped at 5% of our total annual turnover. So, it's not a material sum to the insurer, but it is a very meaningful sum to our business. I think some of the concern is 'are we going to be shifting the risk from the hospitality and tourism to the insurance industry?'  Certainly, in our case, it is by no means that," he said.

Insurers have long been arguing that they are being asked to foot the bill for economic losses that are not insured losses, since the lockdown put the entire economy at a standstill.

What made the situation worse was the fact that in the recent case against Santam, the Western Cape High Court ruled that the insurer should pay Ma-Afrika Hotels and Stellenbosch Kitchens for 18-months' worth of losses, leading experts to call it an insurance disaster.

Rosemary Anderson, the chairperson of the national office of FEDHASA said the country's biggest short-term insurer, Santam shared with its board on 7 July that its balance sheet would still be fine even if it was forced to pay all the business interruption claims.

Santam previously said during the announcement of its interim results that according to its definition of what its policy covers, its exposure to Covid-19 claims was R250 million. But if the courts don't agree with its interpretation, there was no certainty about how much it may have to pay from its balance sheet.

But More said if there was uncertainty in the initial stages of the lockdown, actuaries should have now crunched the numbers and seen that their exposure – when taking the 5% annual turnover cap into account – was not as big as the risk being borne by clients.

Anderson said even the interim relief that insurers provided did not come from "their own moral campus" but because of pressure from the Financial Sector Conduct Authority, the FSCA forced them.

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