Santam working through business interruption claims

It’s nearly 17 months since the start of the first, very harsh, Covid-19 lockdown. It has been a difficult time for business owners, often aggravated by the delays of insurance companies in settling claims for losses suffered due to business interruptions.

Eventually, after some court cases, insurers started to settle. Santam, which prides itself on being the biggest short-term insurer in SA, was arguably at the centre of the furore of damages and claims totalling billions of rand.

The court cases were a necessary evil to establish exact parameters by which to assess claims and determine responsibility.

It turned out to be a public relations disaster however, with insurance companies accused of readily pocketing monthly premiums and baulking at paying claims.

An update by Santam on the progress of settling business interruption claims tried to change this perception.

“Santam is making good progress in handling contingent business interruption [CBI] claims,” says Santam CEO Lizé Lambrechts. “We have made payments to approximately 60% of policyholders that have submitted claims.

“Since January 2021, Santam has paid R600 million to policyholders, in addition to the R1 billion paid in interim relief to 2 500 policy holders in August 2020,” she says, adding that a number of the 2 500 clients who received interim relief have subsequently received additional payments.

Santam notes that most of these payments were to small, medium and micro-sized businesses in the hospitality, retail and leisure sectors.

These sectors were hit particularly hard by the first severe lockdown as well as subsequent restrictions limiting their operations.

Outstanding claims

The figures disclose that 3 252 policyholders notified Santam of their intention to submit claims, which Lambrechts notes represents 2% of the company’s commercial and corporate clients.

Of concern, she says, is that Santam has received claims from only 1 851 policyholders, who represent 57% of the number of clients who indicated that they would submit a claim. Final or interim payments have been made to 1 094 of these clients and the remaining 757 claims are currently being assessed.

Santam notes that it contracted more than 40 additional expert business interruption loss adjusters to speed up the settlement of claims.

It says it also simplified the claims process for businesses where the sum insured does not exceed R10 million per annum and the indemnity period is not greater than nine months.

“This represents the majority of clients. For these clients, Santam implemented a fast track process from 28 January 2021 and provided a basic spreadsheet of two pages that an accountant or bookkeeper can complete,” according to company information.

It says the claims documentation requested is fairly standard for commercial entities, as it includes financial statements that would ordinarily be used for tax purposes.

But there are 1 401 claims outstanding.

“Santam is very concerned that 43% of the clients who initially registered their intention to submit a CBI claim have still not done so,” says Lambrechts. “Since January 2021, the company has communicated extensively with intermediaries and clients, urging them to submit their claims documentation.”

She adds that it is the responsibility of clients to submit documentation and formulate their claims, and that the insurer can only act once it receives claims and supporting documentation.

Why the delay by clients?

Santam conducted a survey a few months ago to determine why clients are not submitting claims. The majority response from intermediaries is that clients are still finalising their financial information with their accountants and auditors.

They need to hurry. The deadline for submitting claims is the end of August 2021.

Lambrechts says the deadline has been extended several times.

She indicates that claimants should finalise their claims despite the previous court order that extended the indemnity period and thus allowed clients more time to submit claims. Santam has filed an appeal against the order, which is set to be heard on August 27.

‘Not profiting’

Santam also used the opportunity to dispel the notion that insurance companies profited from the Covid-19 pandemic.

Read: Short-term insurers showing ‘super profits’ during Covid, but still stalling business interruption claims

Hennie Nel, chief financial officer, points out that Santam made provision for R3 billion worth of CBI claims in the financial year to end December 2020, of which R1 billion was paid by year-end.

“Santam paid out more than R21 billion in claims. It was the highest ever paid.

“In contrast, premiums actually decreased slightly,” say Nel.

The financials show that the net underwriting margin dropped to 2.5% in 2020, well below the target range of 4-8% and the five-year average margin of 6.4%.

No dividends for shareholders 

“Shareholders did not benefit at all. Income attributable to shareholders decreased by 75% to R542 million against R2.2 billion in the previous year. Shareholders received no interim or final dividend,” according to Nel.

He says retained earnings become part of capital and are ultimately available to settle claims.

However, he remarked that Santam is financially sound with a capital coverage ratio of 160% – thanks to the added reserves. This was slightly above the midpoint of its capital target range of 150% to 170%.

The share price proves that shareholders definitely did not profit.

It fell by 34% from a high of R335 before the pandemic to only R220 and has hardy recovered, with not a dividend in sight.

Meanwhile the next challenge has landed in Santam’s lap. The unrest in KwaZulu-Natal and Gauteng will impact the group, despite shunting the losses straight to Sasria.

Santam intermediaries have already received 228 claims and will help with administering the claims.