Santam clarifies Covid-19 position on business interruption cover

JSE-listed insurance giant Santam says it is currently processing “a number of Covid-19 related business interruption claims” but did not reveal the total value of these claims in an emailed response to Moneyweb queries this week.

Santam and other short-term insurance groups have come under fire from clients as well as loss adjustment firm Insurance Claims Africa (ICA) for not paying out or delaying payments on such claims.

The outcry comes largely from tourism and hospitality businesses that have extensions to their normal business interruption insurance plans which cover contagious and infectious diseases.

Read: Business interrupted, but insurers don’t want to pay

Thabo Mabaso, head of corporate communications at Santam, said in a statement that the group is “committed to quickly paying all valid claims that meet the definition of loss” described in its business interruption insurance policies.

“As indicated in our operational update issued on 3 June, provisions for claims from these policies have been raised in our financials based on our best estimate of our exposure. We will treat all claims in a fair manner, and where we are liable, we will not hesitate to settle,” he said.

‘Not at liberty to disclose’

“In terms of the JSE regulations, Santam is not at liberty to disclose financial information that has not been made available to shareholders,” he added, saying the company will release its interim results, which will provide further details, on or about September 3.

In its recent operational update posted in a JSE Sens statement, Santam noted that “a small minority” of its commercial and corporate policyholders have cover that includes protection against contagious or infectious diseases.

“This cover is provided under either the Contingent Business Interruption (CBI) or the Cancellation of Bookings sections of their policies. CBI insurance covers the interruption of a business as a result of a localised outbreak of a contagious or infectious disease that has directly impacted the business’s operations and caused a loss,” it said.

“Losses as a result of governmental restrictions on activity, such as a national lockdown, are not covered,” the group added. “This view is in line with the majority of our counterparts and reinsurers in the short-term insurance industry, both locally and globally.”

Read: OUTsurance pays out Covid-19 business interruption claims

In Santam’s statement to Moneyweb, Mabaso reiterated that CBI protection against contagious or infectious diseases is “very specific”.

Policy wording ‘quite clear’

“Our policy wording is quite clear in that it states a business needs to be directly impacted by a disease such as Covid-19 in order for the cover to respond. If a policyholder can show this to be the case, then we will pay their claim,” he said.

“What we are seeing is that a number of our policyholders were forced to close their businesses at the start of the national lockdown.

“The national lockdown is not a peril that is covered by our policies and so they would not be able to make a successful claim for this event,” Mabaso added.

“It is a requirement in terms of the policy that the business is directly affected by a case of Covid-19. For example, if a policyholder ran a hotel and one of their workers or guests became infected with Covid-19, forcing them to close their operations, then they would have a claim for as long as it took them to clean their premises and return to operations,” he pointed out.

Standard business interruption insurance covers direct physical damage to property, for example a fire or flood. However, it does not cover losses related to infectious diseases.

“It is imperative that we offer clarity on the scope of our CBI insurance cover with specific reference to Covid-19.

“More so in view of the widely held perceptions that short-term insurers will cover all claims linked to the lockdown and Covid-19,” Mabaso said.

Worth noting, however, is that ICA’s biggest issue with Santam and other insurers is the non-payment or delays in disbursements linked to policyholders that have the infectious diseases extension to their cover. ICA is now representing around 500 tourism and hospitality businesses affected by this; however, many more businesses are affected countrywide.

Legal battle

Santam is already facing a legal battle in Cape Town with a boutique hotelier and restaurant group in relation to refusing to pay out such claims.

ICA CEO Ryan Wooley told Moneyweb that his group is considering joining the legal action if some sort of settlement with Santam is not reached. He said around 200 of the 500 clients ICA is representing in the matter are Santam policyholders.

Read: Will your travel insurance cover you for Covid-19?

Responding to this, Santam’s Mabaso said: “It is important to state that we could not consider a settlement for a select group of clients that would not apply equally to all impacted policyholders.”

Furthermore, he said that the proposal sought compensation for claims that did not meet the policy definition of a loss, which is why a settlement could not be reached.

“It is important that we obtain legal certainty as quickly as possible on the policy interpretation applied by Santam and other insurers,” he said.

“To this end, we have agreed expedited timelines on legal proceedings with a policyholder that has a number of boutique hotels and restaurants which are representative of the bulk of the claims we have received.

“While we have great empathy for all impacted by this virus, we can only commit to paying claims in line with the policy wording for which premiums were also paid,” he added.

Meanwhile, Santam pointed out that to date the group has committed more than R400 million in Covid-19 funding. This is meant to provide relief through premium reductions, premium refunds and “direct support to insurance industry business partners and key government initiatives”.