South African Regulator Rebukes Insurers Over Virus Claims

A South African regulator warned insurers to stop broadly rejecting claims from businesses seeking to cover losses because of a lockdown to curb the coronavirus.

“The Financial Sector Conduct Authority is concerned about the behavior of some insurers who are deliberately avoiding paying business-interruption claims where no grounds exist to do so,” the Pretoria-based regulator said in an emailed statement. “The national lockdown cannot be used by any insurer as grounds to reject a claim.”

The FSCA’s rebuke comes as the industry faces legal challenges for refusing to pay out customers on the grounds that business interruption is usually triggered by physical damage, such as a fire. An initially strict five-week lockdown started on March 27 halted everything but essential services before restrictions were slowly eased.

“Ultimately the courts will decide,” said Wayne McCurrie, a portfolio manager at FNB Wealth and Investments. “The FSCA’s statement has no bearing on the terms of the policy contract.”

Insurance Claims Africa said that companies it is representing in the tourism and hospitality industry are owed as much as 4 billion rand ($240 million) for losses incurred as a result of restrictions in the wake of the Covid-19 pandemic. The FSCA’s guidance was a “step in the right direction” and insurers are still invited “to talk to us about a sensible compromise settlement,” Insurance Claims Africa Chief Executive Officer Ryan Woolley said in a statement.

A Cape Town court on June 26 ruled in favor of a restaurant seeking payment from Momentum Metropolitan Ltd.’s Guardrisk Insurance Co. Guardrisk is “in the process of engaging with our legal team to study the judgment and consider the next steps,” a representative said.

Virus Is ‘Unquantifiable’

If insurers were forced to pay business-interruption claims for the lockdown, premiums would jump, making insurance unaffordable, said Casparus Treurnicht, a portfolio manager at Gryphon Asset Management.

“Covid-19 is unquantifiable,” he said, adding that other pandemics could follow given how integrated the world is. “It’s not something where someone was negligent or a fire caused a major machine to fail and therefore the business needs to shut down.”

The dilemma has spurred the South African Insurance Association into creating a committee that will consider mitigation measures to cover losses stemming from climate change and pandemics.

The group will look into existing models in South Africa and abroad, Viviene Pearson, the association’s chief executive officer, said in an email.

Among those would be the South African Special Risks Insurance Association, a government-owned insurance company that covers politically-motivated malicious acts, riots, terrorism and public disorders. It was established during the apartheid era when the market was not willing to cover political risks.

The association will submit its proposals to the National Treasury and finance-sector regulators to “collectively address this challenge,” Pearson said.

©2020 Bloomberg L.P.

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