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Knowing where to tap

Knowing where to tap

Possibly the single biggest pandemic issue affecting the short-term insurance industry was the contingent business interruption (CBI) controversy.

At first, insurers denied liability, claiming that the lockdown was not an insured peril. It took the views of 13 judges before they felt convinced.

The second line of defence, decked out in Stalingrad camouflage, was the fine print concerning the indemnity period. It eventually took a ruling from the Supreme Court of Appeal (SCA) to bring this issue to an end.

In concluding his excellent article on the judgment by the SCA on the indemnity period applicable to pandemic-related CBI cover, Gareth Stokes of FAnews notes:

“My gut tells me that much of the 2020/21 CBI claims debacle could have been avoided had brokers, insurers and reinsurers paid closer attention to policy wordings pre-pandemic.”

The role of the intermediary

Client “ownership“ has always been a controversial matter. Traditionally, the intermediary is compensated for introducing the client by means of commission. Indirectly, this paid by the client, as it is built into the premium. A contract is drawn up between the insurer and the client, but the intermediary is still the manager of that relationship.

It has always been a controversial tightrope to walk. You had to keep the product provider happy to retain your contract, but simultaneously, you had to “keep the customer satisfied”, in the words of Paul Simon, or they would take their business elsewhere.

Santam, as the biggest player in the market, noted it would finalise claims that are directly impacted by the SCA judgment, but pointed out that this amounted to fewer than a third of the 3 200 notified claims. Prior to the SCA ruling, Santam had on numerous occasions requested advisers to finalise outstanding claims requirements, to little avail.

No doubt, numerous clients did not have a clue what the indemnity period stipulated in their contracts was. Apparently, neither did many advisers. Or, if they did, they refrained from sharing it with their clients in the hope that time would resolve the matter.

Worth your weight in gold?

Despite my career of nearly 45 years in the financial services industry, I have never attempted to handle my own affairs, but always relied on hand-picked professionals for unbiased guidance.

My wife runs a small B&B, which was also covered for CBI.

From day one, her broker kept her informed, liaised with the insurer on her behalf, shared information as soon as it became available, and was instrumental in the claim being paid in full the minute the insurer accepted liability. She also provided invaluable advice on the intricate calculations required to determine the loss. Even better, after the claim was paid, she made sure that a small balance still owing for the balance of the last month was also paid.

Knowing where to tap

Whenever I hear people complaining about commission, I relate this story. It has not failed once.

A giant ship engine failed. The ship’s owners tried one expert after another, but none of them could figure how to fix the engine.

Then they brought in an old man who had been fixing ships since he was young. He carried a large bag of tools with him and immediately went to work, inspecting the engine very carefully, top to bottom.

Two of the ship’s owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. The engine was fixed!

A week later, the owners received a bill from the old man for ten thousand dollars.

“What?!” the owners exclaimed. “It’s ridiculous! He hardly did anything!” They wrote the old man a note saying, “Please send us an itemised bill.”

The man sent a bill that read:

Tapping with a hammer ……………………$2.00

Knowing where to tap …………………$9 998.00

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