Business interruption claims to cost Old Mutual over R650m

Old Mutual Insure – the short-term insurance unit of JSE-listed financial services behemoth Old Mutual – plans to settle more than R650 million in Covid-19-related business interruption insurance claims for small and medium enterprise (SME) customers that have infectious disease cover.

Old Mutual announced the move on Wednesday, following similar announcements by Santam, Hollard and Momentum Metropolitan subsidiary, Guardrisk Insurance, over the past few days.

It comes in the wake of the Financial Sector Conduct Authority (FSCA) and SA Reserve Bank’s Prudential Authority reaching an “understanding” with insurers on Friday to assist SMEs that have taken a severe financial blow as a result of the pandemic.

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The landmark agreement followed a national outcry and several legal battles, mainly from smaller tourism and hospitality firms, related to the non-payment or delayed payment of such claims.

Old Mutual Insure said in a statement that the “business interruption commercial settlements” would be for its SME clients “across all industries” that have been hardest hit by the Covid-19 crisis.

“We will make commercial settlements to compensate our customers with an annual sum insured of R5 million or below, for their business interruption losses based on specific criteria to enable them to continue operating during this difficult time,” it noted.

“This settlement applies to all our qualifying SME customers who had the infectious disease extension at the time of loss,” the group said

“We estimate that these financial settlements, combined with already submitted business interruption claims will amount to over R650 million and will provide settlement for half of the customers with the infectious disease extension,” it added.

Short-term insurers are offering settlements or interim relief packages related to such claims, while the industry awaits legal certainty on the issue. Santam said at the weekend that its interim relief plan for these claims totalled R1 billion.

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Hollard confirmed to Moneyweb on Monday that its relief offer totalled around R250 million. Guardrisk did not reveal the value of its offer, however, it noted that the payouts could be made to as many as 700 businesses.

Old Mutual Insure noted in its statement that the group is “still of the view that a suspicion or the general widespread occurrence of Covid-19 in the area or any steps taken by government… to limit the spread of Covid-19 nationally” does not constitute an interruption of the business under the infectious disease extension.

“We have already paid interim business interruption claims settlements, where customers can demonstrate that their businesses were interrupted by Covid-19, with either employees or customers at their premises testing positive or where their policy wordings sufficiently cover the specific losses incurred,” the company said.

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This is the first time Old Mutual group has publicly commented on the Covid-19 business interruption insurance battle.

“While we await legal certainty, we understand that many small businesses cannot wait for the conclusion of the existing court cases. With this in mind, we have decided to make these commercial settlements to stay true to our promise of being a certain friend in uncertain times,” it said

“With regard to customers that do not qualify for the commercial settlement, our dedicated team of business interruption claims specialists continues to carefully consider [these] claims on a case-by-case basis, taking the relevant facts and policy into account,” the group added.

“Old Mutual Insure remains sympathetic towards the challenges and difficulties that our customers are facing due to Covid-19 and the related government enforced restrictions. We have proactively engaged with the FSCA to provide much-needed business interruption support to our SME customers,” it said.

Listen: SAFM MarketUpdate host Nompu Siziba speaks to Santam CFO, Hennie Nel