🔒 Battle Royale as insurers refuse to pay for business interruption. MUST LISTEN

South African insurance companies are refusing to pay many hospitality businesses that took out business interruption insurance and have been hit hard by Covid-19. Hotels, bed and breakfasts and other hospitality providers were among the first to feel the effects as the pandemic erupted in Asia and spread quickly across the world. In this interview CEO of Insurance Claims Africa Ryan Woolley, an expert on complex insurance claims, shares with BizNews founder Alec Hogg the details of the legal games insurers have been playing with smaller companies to get out of their liabilities. This includes a war of prescription, a delay tactic that makes it difficult and costly for a business to fight back if a claim is rejected. Many companies can’t afford the delays and are closing, says Woolley. Meanwhile, the Federated Hospitality Association of Southern Africa has called on the government to force insurers to pay up their dues. – Jackie Cameron

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There’s a battle royale that is brewing in the insurance industry, all about insurance claims or claims for business interruption insurance. Ryan Woolley is the chief executive of Insurance Claims Africa. Ryan, I’ve heard from a lot of people in the industry that this is really a knuckle dusting stuff. You’ve got companies who have taken out insurance against business interruption, including in their policies, is that they would be paid out if there was an infectious disease or a pandemic like we’re going through now, but the insurance companies are not prepared to actually settle. How accurate is that? It sounds a little bit far fetched. 

Well, I think it’s completely accurate. We represent over 400 to 500 claimants and they’ve all had their policies with these various insurers for many years. These insurers designed bespoke products for them, business interruption that would cover them if there was a notifiable, infectious or contagious disease which Covid is. If it affected their business and they then could not trade, well, then the insurers are supposed to stand goods and pay their claims. Essentially, these insurers are now reneging on those contracts saying, yes, although we gave you the specific wording in this special cover, we didn’t intend to insure pandemics. It’s not the Covid-19 outbreak that’s causing your loss. It’s actually the government’s restrictions and their interventions in the lockdown, measures that are causing your loss.

Are they at least offering to repay the premiums?

 Photo Credit: www.insuranceclaimsafrica.com
CEO of Insurance Claims Africa Ryan Woolley.

Not at all. They’re just saying, unfortunately, the policy wasn’t designed to cover that. They’re putting words into the intention and meaning but when you read the plain words on the contracts, it’s undeniable what these policies were there to cover. It just doesn’t make sense to us. If you’re insuring a notifiable or contagious infectious disease, you’re contemplating the fact that the government is going to intervene, that they are going to be quarantine measures. These policies have got a radius limit today. That says if there’s an infectious contagious disease within 50 kilometres and it affects your business, well, we will pay. They’ve got smart lawyers on their side that are trying to get them out of their liability. Essentially, they just didn’t do the maths on what this would cost.

Do you think it’s existential for the insurance companies that they’re taking a rather strange approach?

Absolutely. As I said, I don’t think they did the maths. I don’t think that they realised that they were this exposed. In hospitality and tourism plants, the numbers aren’t as significant as we thought but there are certain insurers that are exposed to corporate and commercial claims in this arena. I don’t think that they can afford these things, which is why we’ve gone and we’ve offered them a compromise. We’ve gone to the insurers and we’ve said to them, listen, we understand the position that you and our clients understand the position that you’re in, we’re not looking to devastate any company, but likewise, don’t devastate our poor insurers. Tourism is one of the last parts of the economy and to rob 3, 4 billion out of that industry, it’s just unthinkable, unconscionable.

Is that what the numbers are? 

That’s more or less in terms of what we’re estimating for the hospitality and tourism sector, for the claimants that we have on hand.

Let’s understand this right. You run a restaurant. You are worried that there might at some point in time be any Ebola or heaven help us, Covid-19. You take out insurance to make sure that if it happens, at least you don’t go bankrupt. So you pay those premiums that once Covid-19 appears on the scene. Your insurance company says, sorry, we’re not prepared to settle. Is that reality? 

You’ve put it very clearly. That’s exactly what they’re saying. This sort of cover was when I said design specific for hospitality and tourism, they took their vanilla wording and they said, you know what, we’re going to give you guys wider cover for exactly these things like Ebola. Covid-19 is no different. It’s also a notifiable disease. They say that they don’t want to insure pandemics. These guys have got these measure risk. They’ve got some of the best research facilities in the world, especially the reinsurers. When you look at that, you say, well, SARS, MERS, Ebola have been around since 2003, the chances of an epidemic or pandemic were they didn’t exclude it in their wording. They wrote the cover and they gave it away without doing any decent underwriting. This cover has got stuff for a shark attack. One of the classic examples we’ve got is the restaurant in Benoni has got cover for shark attacks. They just didn’t apply any underwriting critique to this cover. 

Did these insurers not reinsure? Is this where the problem lies, that they are themselves not exposed to this potentially huge liability?

We don’t know what their reinsurance arrangements are, but we’ve obviously heard from the market talk that, yes, the reinsurers are taking a hard line and they reinsurance won’t consider a compromise, which is why the insurers are being forced into the courts. These reinsurers are European and UK based and this is a global decision that they’re making. It should be up to our local South African companies, to take them to the task and to push back with it. The wordings that are there that our insurers wrote should be honoured. We think that on the deals that we’ve provided to the insurers, that they can affordance claims. We’ve given them terms. We’ve offered them to pay lump sums upfront to 50% to 60% of the value of a discounted claims settlement and then paid off over 6 months to 24 months period of their choosing. Just gives our insured the ability to survive. I can’t think that the insurers on the policies that they’ve written think that there’s no risk attached to this and they are seriously rolling the dice when they’re going to court. I’d hate to think what their shareholders think and whether the boards of these companies actually know what their Exco’s are doing.

What companies are exposed?

All the major insurers are involved. Hollard, Bryte, Santam, Guardrisk, which is essentially Momentum. Then you’ve got that Thatch Risk Acceptances and Factory & Industrial.

Santam, Mutual and Federal, are they in there as well? 

Mutual and Federal as well, that’s correct. Santam definitely.

Is it a knock-on effect in that somebody perhaps in Europe sees this as an existential risk, as a reinsurer and then says, well, we can’t go to the wall, the only way we’re not going to go to the wall is by denying claims and then it cascades down to the South African companies as well? 

Could very well be the case, but that would be a fight between the insurer and the reinsurance, not between the policyholder and the insurer. They’re leaving their policyholders out to dry. The reinsurers themselves, there are actions in the UK with the FCA, which I think will definitely play out and have an impact on what happens here in South Africa and how the reinsurers will conduct themselves. The FCA in South Africa has been very proactive. We’ve been pleased with their approach and the way that they’ve gone about it. They’ve engaged with the insurers and reinsurers and they issued a directive on Friday last week which said that a large portion of these claims is payable. We now want to see the insurers starting to honour that directive.

Have they yet? Have they given you any indication that they will? 

No, they haven’t. In fact, I think Santam to release today saying that only in these specific circumstances will they pay and also that they don’t believe that they covered the lockdown period or pandemics, which, again, we just feel is just ridiculous.

Well, it certainly means you can tear up their marketing claims. We don’t hassle, we pay, etc.. But what happens next, do you go to court? 

I think it’s inevitable. I think that whichever way the guys from the FCA went in their directive that they issued, the reality is that there is an appeal process. So the insurers can go straight into court on that. I think that we definitely will be bringing urgent applications for the characters. Santam has been very good. They’ve said that they won’t oppose any fast-tracking of any legal process, but they do want to certainty in the courts. The earliest date at the moment that we’ve got with Santam, not our action, but one that we could intervene is the 1st of September. Alternatively, we’re going to try and see if we can bring an urgent application sooner.

I guess the problem is many of the businesses might not be able to hang on that long.

There’s a war of attrition that an insurer can play and the war of attrition is essentially the prescription period that run. Firstly, you have to submit your claim within 30 days of your interruption period. If you’ve only got three months cover, that means that you have to submit to that by the end of April, if you missed that, you no longer have a claim. If they’ve rejected your claim, you have to respond in 90 days. If you don’t do that, you lose your claim. You then have to issue summons within 12 months. On average, the policies can be different, but within 12 months of that rejection date, again, if you can’t afford that, if you miss that, your claim dies. You then look at if your business doesn’t survive, which we’ve had several of our clients come forward and say, look, they just can’t afford this. Unfortunately, they’re going to be wound up and their business is done and with that, it means that the claim dies with it. There is a war of attrition that is in play. We are going to be approaching FSCA year for a moratorium on all prescription to so that the fight is fair and the playing field is level.

Is there anything in history that we can draw on? I recall Lloyd’s of London getting into big trouble by not being in a position to honour claims some years ago, and they had to restructure. Is there anything that comes to mind that is similar to this?

Well, I don’t think that there’s been anything similar to this since then, but there have been insurance companies in South Africa that haven’t been able to pay all their claims and have gone into liquidation and, yes, you’ve seen cents on the rand. There are liquidity and solvency ratios that they have to adhere to in order to pay their claims. The regulator and the Prudential Authority is quite heavily involved in that. I know that there have been a few leftfield ideas that have been thrown around. I think the one even said that for the insurers to pay these claims and allow the companies in the country to survive in the hospitality and tourism sector, it would mean that the insurers might have to drop their solvency ratios and liquidity ratios and the government could actually step in with an equity share, 30%, 20%, whatever it might be, in order to stabilise them during a period of 2 to 3 years until they’re pulled back out of this. The reality is that the insurers have the mechanism to pull back the premiums, we think that they should be looking at a fair compromise. Even the FSCA would promote that, as opposed to finding a court battle that goes on for 2 to 3 years. Just Ties up the courts and devastates the economy and essentially it will only be the lawyers that win at the end of the day. And the insurers, whether they win or lose that fight, will still be losers because, 1, they’ve devastated a sector of the economy, or 2, they’ve had to pay these claims at full value.


Media release from Federated Hospitality Association of Southern Africa (FEDHASA): 

25 June 2020, Johannesburg — The rejection by insurers of Covid-19-related Business Interruption insurance claims of the hospitality industry will directly contribute to further job losses, in the sector worst hit by the pandemic.  This is according to Lee Zama, CEO of the Federated Hospitality Association of Southern Africa (Fedhasa).

Fedhasa is the national trade association for the hospitality industry that includes accommodation and catering sectors, and has been representing the industry since 1949.

“Many of our members took out expensive Business Interruption insurance policies, with specific extensions to cover notifiable and infectious diseases. They have been paying their premiums, and when the pandemic hit, believed that these policy payouts would be the much-needed lifeline they had planned for, only to discover that their insurers walked away from their legal obligations.”

Zama is calling on insurers to reach a settlement with claimants, rather than pursue a legal strategy through the courts, which will take months, and in some cases, years to resolve.  Failing this, Zama is calling on Government, and especially the Ministers of Finance and Tourism to intervene on an urgent basis.

“We have seen the pandemic wreak havoc in the hospitality industry, with hundreds of businesses and jobs already lost forever. As the industry slowly begins to open up, under strict hygiene and social distancing protocols, there is a glimmer of light that some may survive. What these businesses urgently need is cash to pay salaries and fixed costs, otherwise more businesses will be forced to close, and more jobs will be lost. By paying out on these claims, insurers have the ability to save jobs, but instead we see them hiding behind their lawyers, while the industry bleeds.”

According to an April 2020 survey on the impact of the pandemic on the tourism and hospitality industry, companies have managed their workforces in different ways, with most favouring reduced wages over furlough or redundancies. 50% of firms have reduced wages for more than 50% of staff and 11% have made more than 50% of their employees redundant. The survey was conducted by the Department of Tourism, the International Finance Association, and the Tourism Business Council of South Africa, of which Fedhasa is a member.

Zama says, “The picture in late June is no doubt substantially worse than it was in April, and it will take years for this sector to find its feet.  This pandemic requires big corporates to act responsibly, ethically and with the knowledge that their actions could be directly responsible for the survival, or demise of a vast number of businesses in this most vulnerable sector.  We need to collectively rebuild this sector.  We are also calling on both the Ministers of Finance and Tourism to intervene as a matter of urgency.”