FSCA slams insurers over business interruption stance
In a statement issued today, the Financial Sector Conduct Authority (FSCA) says insurers avoiding paying business interruption claims where no grounds exist to do so are acting contrary to the Treating Customers Fairly regulatory regime, that it is engaging with insurers on the issue, and that it may issue directives to insurers that are "non-compliant".
This comes against insurers declining to compensate businesses - the bulk of which are in the restaurant and hospitality industries - which had insured against a notifiable disease under their business interruption cover, from the disastrous effects of the Covid-19 pandemic. Insurers argue that their policies were never intended to cover the type of economic meltdown caused by the pandemic and the ensuing lockdown by the government.
The FSCA says in its statement that the national lockdown cannot be used by any insurer as grounds to reject a claim, and that the insurers' conduct "goes against the principles of Treating Customers Fairly and breaks down confidence and trust in the insurance sector".
The FSCA says it has communicated this view to insurers and will take action against those that do not treat their customers fairly. "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; and where 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," the regulator says.
It says it expressed its concern to the short-term insurance industry when this matter first arose and engaged with the sector to resolve it. It formalised its concern in the form of a communication that focused on specific aspects of business interruption cover (communication 34 of 2020). This communication followed complaints relating to delays experienced by policyholders in the processing of business interruption insurance claims and repudiations of these claims by insurers.
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The FSCA assessed different policy wordings and found that, although there are nuances in the wording, they may be broadly grouped into the six categories identified in communication 34.
Based on the information received and analysed by the FSCA to date, the regulator says it 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, whether it was before, during or after the lockdown.
"In other words, the national lockdown cannot be used by any insurer as a ground to reject a claim. If a policyholder has a business interruption policy with a radius clause and such policyholder can prove that it suffered a loss for example, less bookings, cancellations of bookings and so forth as a result of the contagious/infectious disease in the area specified in the radius clause, and its business was interrupted or interfered with as a result of measures taken as a consequence of the contagious/infectious disease, including the National lockdown, then the policyholder has a valid claim.
"In this regard, the FSCA has continually reminded the insurance industry of the fact that Covid-19 entered the country and spread prior to the declaration of the national lockdown," the statement says.
In the communication, the FSCA advised all affected insurers to treat claims in line with the communication.
The FSCA says insurers are engaging with it, and it has advised them that it may issue specific directives to any insurer that is seen to be non-compliant.
The statement also refers to the recent judgment Café Chameleon CC v Guardrisk, in which a Cape Town restaurant successfully fought Momentum subsidiary Guardrisk's decision to reject its business interruption claim.
"This judgment is in line with our communication and with what the FSCA has been communicating to the insurance industry subsequent to the issuance of its communication. Based on this judgment and in an attempt to avoid protracted litigation on further aspects of business interruption cover such as quantum (the amounts paid out)," the FSCA statement says. It says for more details, email Makgompi.Raphasha@fsca.co.za.
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