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In South Africa, there is one insurance company, OUTsurance (which is majority owned by Rand Merchant Insurance Holdings), that is an outlier in the industry. Chief Executive Officer, Danie Mathee told BizNews that its brand and reputation is more important than fighting against claims. The first shots in a huge battle between businesses and the insurance industry – refusing to pay for claims for business interruption from Covid-19 – were fired this week when a Western Cape High Court ruled in favour of a Cape restaurant, Café Chameleon. Insurance Claims Africa, fighting for 500 business in the country to get their claims paid out, says the decision is precedent-setting. But the country’s biggest short-term insurer, Santam, announced yesterday that it is sticking to its policy of separating the lockdown from the Covid-19 pandemic and is not paying out. It will wait for its court case in September to get further clarity on its position, but Chief Executive Officer, Lizé Lambrechts said the insurer is confident it has taken the right stance. There is a storm brewing globally over how the insurance industry has reacted to Covid-19 claims, with billboards in New York urging the worldwide industry to do “the right thing”. – Linda van Tilburg
OUTsurance CEO Danie Mathee speaks to BizNews reporter Linda van Tilburg
Danie Mathee: I’m not quite sure exactly on everyone’s approach to it, but certainly our approach from day one and by that, I mean since the lockdown, basically was to pay these claims where our customers had the appropriate extension on their business interruption, which we call ‘tourist attraction loss’. So, yes, we have been paying those claims since probably April for losses occurring in March and onwards.
Linda van Tilburg: Can you give us an estimate of what OUTsurance has been paid out so far?
To date, we’ve paid out just over R40 million, probably in the region of R43 million. Our maximum exposure is in the region of R220 million; now, the reason why those two numbers differ, is because obviously we pay these businesses on a monthly basis as we review their loss of income. So, in some instances, businesses are able to open again and that helps them generate some income and we take that into account, but we expect our maximum exposure will be R220 million.
You mentioned the tourism industry, does it also cover the hospitality industry? Can you give us a bit of a profile of these businesses that OUTsurance has been saving?
Ja, it does cover hospitality broadly. The majority of the claims are from restaurants, coffee shops, bars, those sort of bed and breakfasts, guest lodges; those sort of businesses are by far and large the majority. And again, by definition, the fact that it’s called the’ tourist attraction loss’ means that it is really aimed at the hospitality industry.
What the other companies have done and what I’ve seen in the court case (Guardrisk) is that they separate Covid-19 from the lockdown. You didn’t do that?
Yeah, again, Linda, I’m not sure exactly of each insurer’s approach and of course, that’s their prerogative how they approach it. Ours was very simple; our policy wording speaks to infectious disease within a specific radius from the customer, 50 kilometres. So we’ve made two decisions early on from a causation point of view. Our view is that the virus is the cause of the lockdown, so the proximate cause is the virus and where those extensions in our policies exist; we therefore think they engage.
And secondly, we didn’t expect customers to prove to us that there was an infectious disease within that 50 kilometre radius, just because we don’t think the burden of proof would be fair in that case. Having said that, of course, if the lockdown wasn’t instituted, I think our view is also that it’s very likely that there would have been a virus within 50 kilometres of many people. So, again, I can’t comment on others simply because policy wording differ, approaches differ, the reinsurance arrangements may differ, but that has been our approach at OUTsurance.
You don’t want to refer to the court cases, but it has been said that if the big insurers pay this out, it would be a massive financial loss and very difficult for some to recover from that. Is your business going to survive or thrive or have the same profits because of these payments that you are making?
It is not an issue of solvency for us. As I said, our maximum exposure is probably R220 million. In context, we only sell this business interruption in our commercial insurance business. So, that equates to about 14 per cent of our annual premiums. So, certainly it will have an earnings impact; there’s no doubt about that and in our group, because we’re a diversified group with personal lines, the insurance business as well as life insurance business; it probably about 2 and a half percent of annual premiums that we have as maximum exposure.
So, certainly not a case of not surviving for us. We will survive and yes, it will impact our earnings. But, you know, I think the way we think about that is; we have a responsibility under our contract to honour these claims and we have to treat our customers fairly and our brand and reputation is probably worth more than fighting it. If you fight it in court, our view is; we don’t think it’s worthwhile. So, absolutely, it will have an earnings impact, but it is not an issue of survival for us.
When it comes to insurers, there is the perception that court cases are sometimes dragged out because the insurers have deep pockets. Do you think going to court is not the really the way to solve this?
Well, not for us, because we’re paying the claims. Remember, again, I don’t really know all the facts beyond the decisions by the insurers because I’m not privy to it and there may be differences there, which means the situation is different. So, I do think most of them have committed to try and expedite the process and certainly our regulators have been very clear and good in that regard to say that they will assist where they can to expedite. So, you know, again, I can’t comment on why others have chosen the route that they have.
Can you just give us some insight what the insurance landscape in South Africa looks like, who is on the list of the top 10 companies?
If you think in premium terms, OUTsurance is probably be around number four. Santam is certainly the biggest insurer in the country, probably followed by Old Mutual or Hollard and then we would be in and amongst that in the top three to four range.
Wouldn’t it be easier then for you to settle those claims than one of those big insurers that would take a massive hit?
Possibly. Absolutely. Again, I don’t know what their exposure is, but we’re probably somewhat fortunate that our exposure isn’t that big and we can make this decision. But, you know, I don’t have insight into their exact exposures so I can’t really safely answer that.
Do you have a figure of how many businesses you saved and who would get the payments?
135 policies, where we have claimants under those. So, by that you can deduce that at a full payment term, assuming everyone claims on the full indemnity the average payment to one of those businesses would be in the region of R1.1 million.
Do you have an idea of how badly businesses are affected by Covid-19?
Look, I mean, of course, we all follow the media and, you know, be it media or social media; you see what consumers are saying and we are also very engaged as a patron sponsor with RASA, which is the Restaurant Association of South Africa. There’s no doubt, I mean economically, not only for businesses affected by business interruption, but the economy is in a very precarious position. It was before Covid; Covid has obviously exacerbated that and there’s tremendous uncertainty about where it goes.
So, there’s high levels of concern and unfortunately, I think the economic impact and the worst of it, is probably still to come as people’s reserves run out as support from financial institutions. It may not be as readily available as what it was. Indeed, I think there’s a lot of pain in the system, so to speak.
Have you found that people skip payments because of what’s going on at the moment?
Absolutely, it’s something OUTsurance keeps a close watch on, but we’ve also assisted our customers by not cancelling the insurance policies for non-payment. Instead, we contact them and try and make other arrangements to see if we can perhaps reduce cover or put other mechanisms in place to keep the basic risk management in place for them. I think the impact on consumers is, from an affordability perspective, is probably still to come into the system in the next couple of months. So, that remains a key watch item for us. We have not seen a major shift in that regard, but I do think it is something that will probably still grow.
- For more on how short-term insurers like Santam and OUTsurance are handling business interruption, see: SA insurance industry’s nightmare gets a fresh Stephen King moment.
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