Can brokers fault the regulator’s BI view?

Insert a comment below if you are sick and tired about newsletters covering the ongoing business interruption (BI) saga. It seems like a year ago that we first started writing about South Africa’s non-life insurers’ reluctance to indemnify clients with contingent BI cover for infectious diseases and similar BI extensions from lockdown-related losses. Oh wait; that is exactly how long ago it was! And it was 10 months ago that the financial conduct authority weighed in with their first wish list insofar non-life insurer performance through pandemic. On 11 February 2021, they offered their latest interpretation via a press release with the self-explanatory title ‘The FSCA’s current position on CBI insurance’.

A position of legal certainty

The press release sets out the Financial Sector Conduct Authority’s (FSCA) latest position on aspects of contingent BI insurance cover alongside its expectations of non-life insurers and policyholders in respect of claims against such cover. The authority felt it necessary to issue an update following the various High Court and SCA rulings issued during 2020, which it said introduced “legal certainty” in processing such claims. “Following recent discussions with non-life insurers with contingent BI cover exposure, it was confirmed that they hold the view that legal certainty has been obtained,” writes the FSCA. Insurers are already reviewing both current and historic claims to ensure that all claim decisions are in line with court judgments. 

One of the issues brought to the FSCA’s attention by policyholders is the requirement imposed on them by insurers to meet ‘burden of proof’ requirements when lodging contingent BI claims. This issue was largely dealt with under FSCA Communication 34 of 2020, which urged insurers to finalise such claims in an expeditious manner. “Insurers must ensure that policyholders do not face unreasonable post-sale barriers to submit their contingent BI claims,” they write. It is suggested that insurers set up FAQs to assist policyholders with the information that must be submitted to expedite the claim assessment process. The FSCA will be engaging further with insurers on these measures. 

Call to action for brokers and policyholders

It has emerged in conversations between the authority and non-life insurers that there are many claims notifications on their books that are ‘stuck’ due to outstanding documents. South Africa’s non-life insurance brokers who have sent claims notifications to non-life insurers are therefore encouraged to revisit these claims and ensure that they have met the insurer’s documentary requirements. It goes without saying that policyholders who are unsure of the progress of their contingent Bi claim should follow up with their broker for the latest update. Brokers and policyholders were also reminded to pay close attention to the time barring clauses contained in their contingent BI policies. 

The interpretation by insurers of the ‘trends clause’ is a possible sticking point despite the courts dedicating considerable time to the matter. A trends clause is described as a clause in an insurance contract that serves to ‘adjust the loss an insured has suffered as a consequence of the insured peril, so that the insured is put in the same trading position after the business interruption, as if it had not happened’. The FSCA has requested insurers to apply this clause in line with the various court judgments. “This means that no insurer may, when it considers adjusting the loss that a policyholder has suffered as a consequence of Covid-19 and the government’s response to it, take into consideration circumstances which are part and parcel of the composite insured peril,” they write. An important decision reached by the courts, domestically and offshore, was that Covid-19 and government’s response to it be considered a joint or composite insured peril. Contingent BI policies must, therefore, respond to loss of profits claims whether they were cause by the outbreak of the infectious disease or the lockdown. 

The ‘full and final’ faux pas

Much has been written about the interim relief offered by South Africa’s non-life insurers to policyholders while they waited for legal certainty to emerge. This writer hopes that policyholders who accepted interim payments on a ‘full and final’ basis will not have been prejudiced by such decisions. Both the FSCA and the Prudential Authority are of the view that policyholders will be bound by settlements agreed on a full and final basis, “provided their insurer complied with the requirements set out in the FSCA press release dated 24 July 2020, titled ‘FSCA’s latest stance on Business Interruption insurance cover’. Policyholders who accepted interim payments without prejudice may be entitled to additional payments upon final assessment of their claims. 

There is one other outstanding question that will likely be addressed when the SCA rules on the appeal in the matter Santam vs Ma-Afrika Holdings. In the High Court ruling, handed down 17 November 2020, the court ordered Santam to indemnify its policyholders for an indemnity period of 18 months, which that insurer holds was not the intention. It has since emerged that the indemnity period ruling only affects a few non-life insurers and that it will not be an issue for most of the country’s outstanding contingent BI claims. 

The value of non-life brokers

“We are heartened by the responsible manner and transparency with which management of non-life insurers have engaged with and responded to us and encourage both policyholders and insurers to co-ordinate and collaborate effectively, to ensure the speedy resolution of outstanding valid contingent BI claims,” concludes the FSCA. This writer expects that most broker-advised policyholders will have completed the steps necessary to secure claims pay outs in line with their insurance contracts. 

Writer’s thoughts:
Reading the latest FSCA press release on the ongoing business interruption saga, one might be excused for asking: What was all the fuss about? In our experience the goings on in the real world are often far removed from the ideal world the regulator envisions. We would love to hear from you about your recent experiences with insurers as you fought to secure pay-outs for your clients. Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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