South Africa Probing Insurance Policies Over Unpaid Virus Claims

(Bloomberg) --

A South African regulator is studying insurance contracts after customers complained that claims related to the coronavirus were unfairly rejected.

One outcome from the process could include an order from the Financial Sector Conduct Authority on the fairness of wording used in policies, Kedibone Dikokwe, the divisional executive for conduct of business supervision at the FSCA, said in an email response to questions on Friday. It may also choose to exercise its other powers, she said, which could include penalties.

A strict lockdown imposed on March 27 to curb the spread of Covid-19 brought all businesses except essential services to a halt before the restrictions were gradually eased last month. Now, Insurance Claims Africa is helping more than 400 companies in the tourism and hospitality industry fight business-interruption claims that insurers said were invalid.

While insurers will be guided by the terms of their contracts with policyholders, the entire cost of the Covid-19 crisis cannot be passed on to the industry, Sanlam Ltd.’s Chief Executive Officer Ian Kirk told investors this week. Sanlam’s property and casualty insurance unit Santam, South Africa’s largest, has reviewed its policy conditions and will cover its business clients against infectious diseases in very specific circumstances.

Typical policies for business interruptions or booking cancellations don’t include pandemic cover, which is the case with the majority of insurers in South Africa and abroad, Santam said in an email. Business interruption is usually triggered by physical damage, such as a fire, and policies don’t generally make provision for losses sustained during a lockdown.

“The reality is that no insurer can afford to offer widespread pandemic coverage within its standard policies, the premiums would be too high and it would become unaffordable for the majority of businesses,” Santam said.

Read more on how Sanlam is managing Covid-19

The FSCA’s investigation has so far raised “some concerns with some of the wordings that it has received to date, but not all,” Dikokwe said. The Pretoria-based regulator has received seven complaints, while others were lodged with the sector’s ombudsman. One policyholder has approached a South African High Court.

The regulator is in talks with Insurance Claims Africa, insurers, re-insurers and other regulators to determine trends in the local market around virus-related claims, Dikokwe said.

©2020 Bloomberg L.P.

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