SHORT-TERM INSURERS (STIs) have been accused of making extraordinary profits out of the Covid-19 lockdown by maintaining premiums at pre-pandemic levels, getting reinsurers to pick up the tab and stalling on insurance payouts, especially to the hospitality and tourism sectors at the expense of crumbling businesses in the sector.
According to research by public loss adjuster Insurance Claims Africa (ICA), which is pursuing at least 850 claims by businesses, so dire is the situation that recovery methods are looking at introducing legislation that will enable litigants to claim more for damages incurred from delays in payouts than the amount a client is covered for to mitigate the damage wrought by delays.
ICA said STIs increased unappropriated profits by more than 20 percent to a new record of R53.5 billion, total industry assets by 12 percent to more than R220bn, while suppressing the value of unpaid claims, which rose by more than 17 percent to a record high of R49.4bn in 2020. The research, conducted by Dr Roelof Botha, an economic adviser to the Optimum Investment Group, and Keith Lockwood from the Gordon Institute of Business Science, revealed a disparity between the financial gains achieved over the past year by STIs and their customers, who because of non-payment of claims were desperate for any lifeline that would allow them to survive and retain thousands of jobs.
ICA chief executive Ryan Woolley, speaking at a webinar yesterday, said the organisation has had a positive interaction with Hollard South Africa and Old Mutual Insure, but had come up against hurdles with Santam, which was working through its lawyers at Norton Rose Fulbright to avoid liability for large claims in its Hospitality & Leisure (H&L) division.
“On our information H&L had serious administrative issues, to the extent that they cannot identify which policy wordings were issued for their clients.
“They are currently arguing that the brokers who moved their books of business from previous insurers did so to achieve less cover and more expensive premiums,” he said.
Woolley said the ICA had proposed a sensible solution to their problem, but this “appeared to be frustrated by their attorneys”, and they had decided to correspond directly with the Santam board and its major shareholders.
Santam had announced in January 2021 that it would commence the process of assessing and settling valid claims for policies with contingent business interruption (CBI) extensions after obtaining legal certainty on the proximate cause of business interruption losses.
“Insurers need to stop greenwashing their response to this crisis. They are not the angels that they purport to be, and have done very little to demonstrate that they have their customers' interests, and not their own profit margins, at the heart of their decisions. After all, companies are judged not on what they say, but on what they do,” Woolley said.
Unlike long-term insurance, which experienced a decline of 39.4 percent in its current account income surplus, the STI segment recorded positive growth for virtually all of the key indicators of financial performance, with its current account income surplus increasing by 19.4 percent.
He said insurers had overestimated the impact of the pandemic on business and got caught out when it did not extend beyond expectations, that the damage inflicted on the South African economy in 2020 as a result of the Covid-19 pandemic turned out to be less severe than generally anticipated, with a swift rebound occurring during the second half half of 2020.
South Africa's growth forecast for 2021 has been upgraded to 3.1 percent by the International Monetary Fund with low interest rates; growth in digital communication and retail logistics; and signs of a new super-cycle for commodity prices, having contributed to exceptionally strong growth prospects for 2021 and beyond.
Woolley said from the new research, it was clear that the short-term insurance industry earned record profits during the pandemic, and had no reason to further delay settlement of all outstanding Covid-19 business interruption claims. Santam had announced in January 2021 that it would commence the process of assessing and settling valid claims for policies with contingent business interruption (CBI) extensions after obtaining legal certainty on the proximate cause of business interruption losses.
Santam said yesterday that it had taken note of statements made by ICA about the payment of claims for CBI insurance and said the statements contained a number of inaccuracies and false allegations. “Santam views the statements in a serious light and will respond appropriately to the allegations. Santam assures its clients and all interested parties that it continues to expeditiously settle all valid claims in line with the policy wordings and conditions of cover,” it said.
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