Some South African insurers are trying to dodge paying out for lockdown losses

 ·10 Jul 2020

One of South Africa’s key financial regulators, the Financial Sector Conduct Authority (FSCA), says it is concerned about the behaviour of some insurers who are deliberately avoiding paying business interruption claims where no grounds exist to do so.

In a circular published on Thursday (9 July), the FSCA said that the national lockdown cannot be used by any insurer as grounds to reject a claim.

“Such conduct goes against the principles of treating customers fairly and breaks down confidence and trust in the insurance sector.

“The FSCA has communicated this view to insurers and will take action against those that do not treat their customers fairly.”

The regulator said that one of the key principles underlying the Twin Peaks reforms is that of treating customers fairly, where:

  • Products are designed to meet customers’ needs;
  • Are sold in such a way that customers understand what they are buying;
  • Unfair barriers such as fine print or unfair proof of claims are not put in the way of customers exercising their rights in terms of those policies.

Based on the information received and analysed by the FSCA to date, the regulator found that, although it could not find evidence that the national lockdown could be a trigger for a valid business interruption insurance cover claim, policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy.

This is whether it was before, during or after the national lockdown.

“In other words, the national lockdown cannot be used by any insurer as a ground to reject a claim,” it said.

The FSCA said that certain conditions need to be met for a valid claim. This is if:

  • A policyholder has a business interruption policy with a radius clause;
  • They can prove that the business suffered a loss – for example, fewer bookings, cancellations of bookings and so forth;
  • The loss was a result of the contagious/infectious disease in the area specified in the radius clause;
  • Business was interrupted or interfered with as a result of measures taken as a consequence of the contagious/infectious disease, including the national lockdown.

The FSCA said it has continuously reminded the insurance industry of the fact that Covid-19 entered the country and spread already prior to the declaration of the national lockdown.

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