Insurers cannot use lockdown as grounds to reject claims – FCSA

Regulator lambasts industry for deliberately avoiding paying out legitimate business interruption insurance claims.
Financial sector watchdog says it will take action against insurers that don’t treat customers fairly. Image: Moneyweb

The Financial Sector Conduct Authority (FSCA) has clarified its position on the hot-button issue of business interruption insurance policies that have infectious disease cover, saying the lockdown aimed at curbing the spread of Covid-19 cannot be used by any insurer as grounds to reject a claim.

In a strongly-worded statement issued on Thursday, the financial regulator added that it “is concerned about the behaviour of some insurers who are deliberately avoiding paying business interruption claims where no grounds exist to do so.”

The FSCA’s comments come in the wake of a recent landmark victory in the Western Cape High Court. Cape Town restaurant Café Chameleon successfully secured a declaratory order against Guardrisk Insurance, which is part of JSE-listed Momentum Metropolitan, for non-payment of a claim linked to the Covid-19 pandemic.

Read: Cape café’s ‘precedent setting’ business interruption insurance victory

Noting the case, the regulator said: “This judgment is in line with our communication and with what the FSCA has been communicating to the insurance industry subsequent to the issuance of its communication. Based on this judgment and in an attempt to avoid protracted litigation on further aspects of business interruption insurance cover such as quantum, the FSCA is engaging with the insurance industry in the interests of all affected policyholders.”

Café Chameleon is one of hundreds of smaller tourism and hospitality establishments countrywide that have cried foul over short-term insurers refusing to pay or delaying payments on policies that have extensions covering contagious and infectious diseases.

“Such conduct [by insurers] goes against the principles of treating customers fairly and breaks down confidence and trust in the insurance sector,” the FSCA declared.

Read:
Hoteliers plead for Covid-19 business interruption insurance payouts
Business interrupted, but insurers don’t want to pay

The watchdog said that it has communicated this view to insurers and “will take action against those that do not treat their customers fairly”.

“One of the key principles underlying the Twin Peaks reforms is that of treating customers fairly, where products are designed to meet customers’ needs; are sold in such a way that customers understand what they are buying; and unfair barriers such as fine print or unfair proof of claims are not put in the way of customers exercising their rights in terms of those policies,” it noted.

“The FSCA expressed its concern to the short-term insurance industry when this matter first arose and engaged with the sector to resolve it. The FSCA formalised its concern in the form of a [industry] communication that focused on specific aspects of business interruption insurance cover [communication 34 of 2020],” it said.

“This communication followed complaints relating to delays experienced by policyholders in the processing of business interruption insurance claims and repudiations of business interruption insurance claims by insurers,” the FSCA added.

Read:
OUTsurance pays out Covid-19 business interruption claims
Santam clarifies Covid-19 position on business interruption cover

As part of this process, the regulator assessed different wordings of such policies of the various insurers and issued guidelines [communication 34 of 2020] for insurers to deal with business interruption insurance claims.

“While the FSCA acknowledges that business interruption claims are complex in their nature, insurers that have policy wordings which fall under the (1) radius and notification, (2) radius; and (3) notifiable diseases categories must, when they have received all relevant documentation from a policyholder, not delay the payment of any claim provided policyholders are able to prove the requirements highlighted,” the FSCA noted in its concluding remarks of its industry communiqué at the time.

In the communiqué, the FSCA also pointed out that the actual Covid-19 lockdown could not be regarded as a trigger event for such claims.

It may have been this element that caused some confusion in the industry.

But in its latest media statement, the regulator clarified: “Based on the information received and analysed by the FSCA to date, the FSCA found that although it could not find evidence that the national lockdown could be a trigger for a valid business interruption insurance cover claim, policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy, whether it was before, during or after the national lockdown.”

The FSCA added: “In other words, the national lockdown cannot be used by any insurer as a ground to reject a claim.

“If a policyholder has a business interruption policy with a radius clause and such policyholder can prove that it suffered a loss for example, less bookings, cancellations of bookings and so forth as a result of the contagious/infectious disease in the area specified in the radius clause, and its business was interrupted or interfered with as a result of measures taken as a consequence of the contagious/infectious disease, including the national lockdown, then the policyholder has a valid claim.”

The regulator noted that it has “continuously reminded the insurance industry of the fact that Covid-19 entered the country and spread already prior to the declaration of the lockdown”.

Insurers are engaging with the FSCA, which has advised that it may issue specific directives to any insurer which is seen to be non-compliant.

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The FSCA is behaving like a sleeping watchdog which begins to bark after the intruder has left or is being chased by the homeowner.

A watchdog is supposed to start barking upon seeing an intruder. Now that a poor victim has been vindicated by the courts this watchdog is now very loud.

I believe this is late from this body or dog.

Perfect analogy

After 4 months, now they bark??? It’s too late now!

Just 3 weeks ago they sent out a communication that 180 degrees contradicts this view. They explicitly stated that lockdown is not a valid reason to settle BI claims. What changed since then? Besides major public pressure and a coordinated PR campaign…

Now FSCA, don’t ask insurers to pay , order them to pay and fine them if they refuse !

Trying to avoid paying has always been the modus operandi of this odious industry. Always keen to take your premiums, but far less keen to honour their side of the contract.

Exactly,

Crazy one I remember was a fight I had with TIC for years on a large travel claim from flight cancellations as a result of a volcano eruption in South America.

They refused paying on the policy exclusion ” weather conditions”!

Like a bunch of loan-sharks from the middle ages!

The thought of Insurers never wanting to pay claims, is untrue as can be confirmed by millions of clients with legitimate claims having been paid in the past. Now Covid 19: Nobody foresaw this pandemic including Insurers or even the Govt. If Insurers had insight into this kind of thing, they would have offered the cover at an additional price and then would have had the money to pay for this and conversely so, they now sit with the dilemma of either not paying or try to pay as much as they can and go out of business. The question arises: if they pay, will the Govt refund them in order to keep them afloat or will the Govt abandon them?- we are talking of many Billions of rands that will make the R 16 billion SAA saga look like a non-starter.

At least someone understands the issue. Something like this could bankrupt many insurers. That said, the policyholder is entitled to redress.
After all insurance is essentially a form of Ponzi scheme.

They are in the business of taking risk; if they cant afford to pay their clients for a disaster that they have insured themselves against and paid premiums for years they should fold. They are being disingenuous!

Well the financial industry love the business of “heads I win, tails you loose”

The government is not the one who will cover this cost.
The re-insurers share the risks and the profits and should be the one called to help in this case I believe.
For years, insurers have generated heavy profits reinvested in real estate and properties.
The time, exceptional, I confess, has come for a bit of payback, and insurers and re-insurers will have to make a strong effort.

This situation is a first in the history of insurances, but the covers had very little chance to happen. Now, it has happened.
Insurance premiums will be much higher after this pandemic, to repay the “loss” generated by this crisis.

And pandemics have already been excluded from all policies early march 2020, so the risk will never be included anymore.

Not sure who disgusts me more. The insurers refusing payouts or the FCSA voicing themselves AFTER a court ruling. Bloody cowards

I have worked at several big corporates over the past decade.

A common theme that exists amongst the majority of them is that they have lost their humanity in their pursuit of “shareholder value”. Everything to them is about profit.

For the majority of them, the job cuts that have been evident at corporates have not been to do with those corporates making an actual loss, but rather to do with their effort to keep their profits up and for the executives to meet their targets for bonuses (which obviously filters down through the ranks to be targets for managers).

Everyone knew from the outset that the economy would recover in a year or so, but the bean counters were doing short-term planning. The job losses that they have caused actually work against their longer term plans. (Not that they really manage their longer term plans.)

If people are out of work for any amount of time, they wont have money to spend during that time PLUS they will want to hold back on spending to make up for the losses during that time. Not to mention that those who have lost work likely wont be so affectionate to their ex-employers anymore and that sentiment will spread through word-of-mouth.

But bottom lines matter. Apparently.

We need less red-tape in country to create a more business friendly environment but the other issue is that businesses tend to abuse the freedoms they are afforded. Hence this situation.

Does anyone really believe any insurance (life, medical or property) or investment institution care one iota for you and your needs. The only thing they are interested in is your money. Speak to any actuarial scientist and they’ll tell you who the loser is in this game. If medical aid schemes aren’t “pyramid schemes” please explain to me what they are??

End of comments.

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