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On lockdown, unrest and insurance

04 August 2021 Gareth Stokes

The two years starting 2020 have presented untold challenges to insurers, regardless of whether they underwrite risks in the medical, life or non-life disciplines. First, we suffered the hammer blow of the Covid-19 pandemic, which was confirmed early-2020 and continues to ripple through society to this day. Second, and an extra for SA-based insurers to endure, we were broadsided by a week-long period of looting, rioting and vandalism that tore through Gauteng and KwaZulu Natal in July 2021. The cost of insured loss and damage due to ‘civil commotion’ will be picked up by Sasria SOC Limited and its reinsurance partners; but all insurers, as agents of Sasria, have been roped in to assist with administration and claims assessment and settlement.

CBI claims saga still playing out

The extent of the challenge facing local non-life insurers is nicely encapsulated in a recent SENS announcement by the country’s market leader, Santam Limited (JSE: SNT). Their ‘Update on insurance implications of current unrest and contingent business interruption claims’ warned that claims following ‘large footprint’ shocks such as lockdown, pandemic and unrest would have “long-term implications on investor confidence and the cost of insurance” domestically. Local media have reported extensively on the non-life insurance sector’s response to pandemic and the ensuing national lockdown. For the most part, they have been critical of insurers for delays in paying or the outright rejection of complex continent business interruption (CBI) claims. 

There may be some merit in the criticism, because it took some strongly worded communication from the Financial Sector Conduct Authority (FSCA) – and a few courtroom battles – to spur insurers into action. The net result was that insurers either paid CBI claims per their policy wordings or made interim payments to affected policyholders as they awaited legal certainty. Insurer objections to whether or not lockdown constituted a valid trigger for these types of claims have since been decided in favour of their policyholders at the Supreme Court of Appeal (SCA) level, with the main outstanding matter being around the period for which certain covers should be paid. Santam advised as follows: “Our appeal against the Ma-Afrika judgment with respect to the length of the indemnity period is expected to be heard by the SCA on 27 August 2021”. 

R1.6 billion paid, and counting…

The insurer said that it was making good progress in handling [uncontested] CBI claims, having made payments to approximately 60% of policyholders that had submitted claims. In total, the insurer has paid out R1.6 billion to affected policyholders, including the R1 billion paid in interim relief to 2500 policyholders in August 2020.  Most of the beneficiaries of the interim relief were small, medium and micro-enterprises in the hospitality, retail and leisure sectors. The Santam SENS contained some interesting statistics following the nationwide lockdown and pandemic ‘composite trigger’, including that: 

  • A total 3252 policyholders, or 2% of the insurer’s commercial and corporate client base, have notified of an intention to formulate and submit claims;
  • By 15 July 2021, 1851 of these policyholders had submitted claims;
  • Final or interim payments have been made to 1094 of these policyholders; and
  • The remaining 757 claims were still going through assessment and settlement processes with loss adjusters. 

“All claims where documents have been submitted, have been or are currently being attended to,” noted Santam, who expressed concern that 1401 clients who initially registered their intention to submit a CBI claim had still not done so. They urged affected clients and their intermediaries to submit their claim documentation before the final deadline of 31 August 2021. FAnews readers, take note: You have until 31 August to ensure that your clients pandemic-related BI claims are completely formulated and submitted! 

Responses to catastrophe

The South African non-life insurance industry should be commended for its actions in the face of catastrophe. As much as we criticise, we must acknowledge the disciplined approach to insurance business that has allowed our insurers to survive the Knysna fires, various extreme weather events, the 2020/21 pandemic and the latest bout of civil unrest with their balance sheets intact. Kudos to the prudential regulators for introducing Solvency Assessment and Management (SAM) and to the insurers for their strict adherence to the tough capital targets so imposed. Local insurers should also be commended for putting more resources in place and tweaking operational processes to handle higher catastrophe-related claims volumes. 

Santam, for example, contracted “more than 40 additional expert business interruption loss adjusters to strengthen its internal capacity and to enable faster processing of claims”. And they have taken steps to simplify the claims process for businesses where the sum insured was less than R10 million per annum and the indemnity period was not greater than 9 months… Sasria has taken similar steps to speed up post-unrest claims settlement by giving its insurer agents mandates to pay-out low value claims of less than R50000. The special risks insurer was soon negotiating with various insurers to increase their mandates to R500000 on personal lines and R1 million on commercial claims. 

South Africa’s civil commotion conundrum

Insured losses following civil commotion are estimated at between R12 and R15 billion, with the bulk of this being carried by Sasria and its reinsurers. Santam explained in its SENS that short-term insurance policies “do not provide cover for riots, strike actions and public disorder” before confirming that it would assist intermediaries and clients with channelling civil commotion damages claims to the special risks insurer. There could, however, be a financial impact to the Santam group, which has a small participation percentage on the Sasria reinsurance program through its reinsurance business. Although too early to quantify the potential exposure, the participation is within the group’s risk appetite. 

It will take time for the full impact of civil commotion and pandemic claims to filter through to each of South Africa’s non-life, life and medical insurance stakeholders. Risk premiums in the non-life environment will inevitably trend higher as the domestic risk outlook worsens. The life sector, meanwhile, is watching closely for significant changes in mortality and morbidity before taking action. Most have acknowledged an increase in claims; but say it is too early to comment on the pricing impact. And finally, medical schemes are struggling to price 2022 contribution increases due to the pandemic claim experience rendering their long-term claims data obsolete. Read more on their concerns in ‘Medical schemes in uncharted territory’. 

Writer’s thoughts:
As we pen this newsletter another disaster is unfolding, with Transnet declaring ‘force majeure’ at a number of its facilities following a cyberattack on its systems. As containers clog Durban harbour, the non-life industry is anticipating a flood of marine insurance claims. What can you do to assure your clients that they can conduct sustainable business in South Africa… And what are the main concerns your clients are raising during their insurance renewal discussion? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts


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