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Interim relief for Business Interruption claims – Insurers provide details after FSCA intervention

Decisive action by the Twin Peaks Authorities saw the hard-nosed stance by non-life insurers make way for a more practical approach to the issue of business interruption claims in the hospitality industry.

On Friday, the FSCA published an updated version of its stance on the matter:

“The Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) (Authorities) have reached an understanding with non-life insurers that are most affected by business interruption cover claims that they will consider interim relief to their policyholders who have the appropriate contagious disease extension, while legal certainty on this matter is being sought from 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.

The interim relief to be provided by non-life insurers will differ from case to case dependent upon reinsurer support, financial impact and the number and types of policyholders. Based on the above, the Authorities have established the following guiding principles to be applied in determining the interim relief:

 The interim relief should at the very least focus on those businesses most impacted by lockdown (for example, the hospitality industry) and also on small businesses;
The funds provided to a policyholder as interim relief shall not be claimed back by any non-life insurer from a policyholder should the courts decide in favour of insurers. However, should the courts find in favour of policyholders, these funds will be deducted from the total claim amount payable to a policyholder by a non-life insurer; and
This relief should be on either an interim basis pending legal certainty or if non-life insurers wish to offer a full and final settlement, such settlement should reflect reasonable value to a policyholder and the implications thereof should be clearly explained in writing should a policyholder wish to accept the settlement on this basis.

Thus far, the three insurers who have reacted, opted for an interim payment, rather than a final settlement, possibly as a result of the possibility that such an option could be construed as an admission that clients did have a valid claim. It does appear though that Old Mutual Insure has made “full and final settlement” offers to individual clients. They have also not yet published anything in this regard.

The media releases from insurers carried the normal sugar-coated PR spin, but communications to advisers contained the nitty gritty of what these offers entail.

Hollard was first out of the blocks, indicating that it would be providing interim relief to more than 1 000 qualifying businesses, under the following conditions:

Annual turnover R25m or less
Turnover reduction of 30% or more in April, May and June
Payments capped at R200 000
Income from other relief measures to be offset against these payments
Subject to submission of various requirements, including documentary proof and compliance with other regulatory requirements e.g. SARS.

Santam’s offer appears to be less complicated. Clients are offered 70% of the insured amount as at 18 March for two months. This is referenced specifically to April and May when lockdown levels 4 and 5 applied.

Businesses operating within the industries identified for relief must have a Santam Commercial or Hospitality & Leisure policy with the CBI extension, taken out before 18 March 2020, and still in force. The policyholder must have registered a claim and must not be an essential service provider allowed to trade during the lockdown. This could prove problematic for those who opted to apply for status to operate as isolation centres.

The offers from Santam will include a minimum payment of R25 000 and a maximum of R1.5m. Clients will be required to sign a funds release form, which will be made available within five working days via their brokers, and Santam will endeavour to pay such amounts within a further five working days.

Bryte have indicated that they have already paid 3 700 Covid-19 related claims (we believe these were mostly for deposit refunds and cancellations). It intends paying 2 weeks’ BI cover, up to a maximum of R100 000 to qualifying policyholders.

These steps will come as a welcome relief to many smaller operators and bring hope for survival in place of the gloom that pervaded in the industry. Even more significant will be the impact on employees in the industry, many of whom are breadwinners, and now also devoid of the Ters benefits.

It is vitally important that sanity prevails and regulations regarding travel be reviewed in practical terms. The hospitality industry is well organised and has all the required protocols in place to abide by what is required to offer as safe a haven as possible. The relief in business travel is non-sensical, as virtually every business is sticking to video conferencing.

The extent of the problem is evidenced by the closure of businesses that have withstood many obstacles in the past but can no longer hold out against the stranglehold of non-sensical regulations made by people who appear to have little or no grasp of the practical implications of their decisions on the most vulnerable of citizens which they are legally and morally bound to protect.

Click here to view the FSCA’s latest stance on Business Interruption insurance cover.

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