EDITORIAL: The pandemic has been a disaster for short-term insurers
Coverage for business interruption may have been seen as an unlikely payout possibility, but it is now becoming a legal battle
For SA’s battered tourism industry, it has really been a double whammy.
On the one hand, a sector that accounts for close to a 10th of GDP and on which millions depend has had to cope with being forced to stop operating, while support from the inefficient government relief programmes has been inadequate.
The problems with the government credit guarantee scheme are well documented and it is doubtful that many of the businesses whose existence is under threat from a prolonged lockdown that is, for them at least, unlikely to end anytime soon, will pass the stringent criteria to qualify for loans.
On top of the well-known shortcomings of the relief programmes run by the Unemployment Insurance Fund (UIF), the government has complicated efforts to safeguard people’s incomes by imposing extra conditions related to different policy goals such as BEE.
And now they have since discovered that the insurance policies that they’ve been paying premiums on in the hope that they wouldn’t be caught out should the unthinkable happen, may not be worth the pieces of paper they are written on. For these people running small businesses across the country, the stress of legal battles with much more powerful corporate forces is the last thing they need.
Would there be a lockdown without the virus outbreak?
Though without the human cost, this episode has also been disastrous for the country’s providers of short-term insurance. Their refusal to pay out on business interruption cover has left them in the midst of a public relations disaster that might end up being worse than any financial pain they suffer eventually. In the end, it may not even matter if their legal interpretation of what is contained in the contracts is correct or not.
A case in which a subsidiary of Momentum Metropolitan, Guardrisk, was ordered to pay for the losses incurred by a Cape Town restaurant since the lockdown came into effect in March may have given hope to the claimants, though it might be subject to an appeal.
The argument is simple enough. The companies believe that policies they took out protected them from an event such as the pandemic, which is devastating the world, while insurers say the losses are due to the lockdown and not the pandemic. It’s an argument that’s eerily familiar to the line that blames the country’s economic devastation on the lockdown rather than the virus itself.
To a layperson, it might seem like a strange argument. Would there be a lockdown without the virus outbreak? Taken to the logical conclusion, would the companies argue that the government had been wrong or negligent in ordering the lockdown and should therefore be liable?
When the outbreak first became a global story and necessitated the cancellation of big global sporting events such as the Olympics, which were due to be held in Japan, it emerged that the organisers of the Wimbledon tennis tournament had over the past 17 years spent $2m a year on so-called pandemic insurance.
Considering the low risk, for most of those 17 years the All England Lawn Tennis and Croquet Club probably looked silly to observers. That’s until the unthinkable happened and they were able to claim $141m to cover some of the losses that have resulted from the event not taking place in 2020. Coincidentally, it was supposed to be taking place right now, with the finals this weekend.
While we do not want to pre-empt the results of the various court cases, the insurance companies find themselves in a position where they are vulnerable to being accused of confirming one of the more enduring stereotypes about the industry. The question that lingers is whether they were reckless (and greedy) in taking money from customers while confident that the event they were offering insurance for wouldn’t happened, and have now been caught napping.
Of course, some of the bigger companies say that this is a matter of principle and they should be able to absorb the costs should they lose.
The sooner legal certainty is achieved the better. What’s not in doubt is that the companies won’t emerge from this smelling of roses. The more important point is that the owners and employees of restaurants, hotels and lodges across the country get certainty.
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