• The Labour Co. Team

There will now be a once-off payout for lockdown insurance claims after regulator steps in.

Insurers have just been forced to make a once-off payout for lockdown claims.

In a joint statement, the Financial Sector Conduct Authority and the Prudential Authority announced that they had come to an agreement with insurance firms to provide interim relief while the legal battle over lockdown claims rages in the courts.

“This interim relief will take the form of once off payments to policyholders to enable them to continue running their businesses while waiting for the outcome of the legal process,” said the FSCA in a statement.

Crucially, policyholders won’t need to pay the money back, even if the insurers win in court. And, should the courts decide in favour of policyholders, then the money will be deducted from the total claim.

The regulator said it was concerned about the damage to the industry’s reputation after insurers have refused to pay out for lockdown claims under business interruption extensions.

The exact size of this payout will be left up to each insurer and has not been announced yet. However, in an email to brokers seen by Business Insider, insurance company Hollard said their payments will be capped at R200,000 per policy.

The company said it expected to “make payments to more than one thousand such businesses in order to alleviate some of the financial burden these businesses are facing”.

However, the payouts will only be going to smaller businesses. To qualify, Hollard’s clients must have “an annual turnover of R25m or less”. In addition, they need to show that they’ve suffered “a reduction in revenue of 30% or more in the period 1 April 2020 to 30 June 2020 compared to the average income over the previous 12 months”.

It’s also likely that some of these insurers won’t be able to claim these so-called ex gratia payments back from their own reinsurers, says Jan Wink, managing director of Incompass Insurance Consultants, a boutique hospitality insurance group. That means they’ll be paying out of their own pockets, which could financially cripple some of these insurance companies, he says.

After being unable to do business for months, restaurants, bars, hotels and guesthouses are demanding that their insurers pay out business interruption claims for the financial harm they suffered while being under lockdown. Some business interruption policies include cover for contagious diseases.

However, some big insurance companies, like Santam and HIC, are hesitant to pay out, claiming that the income losses stem from the government-induced lockdown, and not from the disease itself. Some insurers are willing to pay out for localised outbreaks of Covid-19, such as the forced closure of a restaurant due to coronavirus cases, but don’t want to pay out for the general loss of income due to the lockdown.

Hundreds of their policyholders - led by Insurance Claims Africa (ICA) – are threatening a class action lawsuit. Santam is already being sued by two of its clients for its refusal to pay out business interruption claims, and the case will be heard on 1 September in the Western Cape High Court.

“We applaud the regulatory authorities for calling the meeting with insurers and for ensuring claimants, who are in an extremely vulnerable financial position, are treated fairly,” said Ryan Woolley, CEO of ICA. However, he was sceptical about the difference the payments would make to policyholders.

“While the interim payment could provide some relief for these businesses, it will be critical to understand what this relief will entail,” he said. “From what we have seen thus far, it appears that the size of the interim relief is a small percentage of what the claimants are owed.  To term this a lifeline, would be an exaggeration.”

Edward - John Bottomley

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