Outsurance stance on business interruption payouts puts other insurers to shame

No-one saw it coming. As the hospitality industry reeled from the news that the business interruption policies — even those with “contagious disease” cover — would not cover its massive Covid-19 lockdown-related losses, Outsurance revealed that it had been honouring those claims since April.

They’ve approved 135 of them so far, with a total payout of R37m. In all, R220m has been reserved by Outsurance for the settlement of its business interruption claims — those that had the contagious disease extended cover, that is.

Outsurance’s contagious disease policy wording is very similar to those in the business interruption polices of the big players such as Santam, Bryte, Old Mutual Insure, One, Guardrisk — “an outbreak of an infectious or contagious disease occurring within 50km of the business”.

In SA and abroad insurers have declined their hospitality clients’ lockdown-related claims, arguing that, in the words of Santam, “the scope of cover is intentionally restricted — it was never the intention of the extension to provide cover for a pandemic event affecting the whole of South Africa”.

“We provide cover for a business that is shut down directly as a result of a contagious disease. If we were to charge premiums based on the risk of a national lockdown or any form of mass governmental action, then insurance would be unaffordable.”

The Financial Sector Conduct Authority (FSCA) appears to agree: “[We] are of the firm view that the national lockdown was not intended and cannot reasonably be interpreted to be a trigger for BI [business interruption] insurance cover claims,” the regulator said earlier in June.

Many insurers got their clients — who were not forced to close as a direct result of a specific Covid-19 case — to spend months jumping through hoops, proving an outbreak within 50km of their establishments, and submitting their financials, only to send them a standard rejection letter.

A broker told me this week: “My client took a R180,000 loan against his house to keep his restaurant afloat, in the hope of some settlement, given the initially positive tone of our engagements with the insurer, only to be told he’s not getting a cent.”

And then Outsurance broke ranks. “Our view, from the onset of the pandemic,” CEO Danie Matthee said, “is that they are covered [by the policy wording] and we needed to get cash to the businesses with the right cover in place as soon as possible.

“We understand cash flow is king for small and medium businesses and we are pleased that we could be of assistance to our clients in this time of need.”

Payments are made to establishments every month and will continue for either the full indemnity period or once the business turnover is at pre-incident levels, whichever occurs first. The average payment is just over R400,000.

“We started paying claims in April for March losses and by late April where clients had not claimed, and had the appropriate cover, we in fact started calling them to help submit claims,” Matthee said.

Most of the claims were by clients in the hospitality industry, with a small percentage being in retail, mostly beauty salons.

Will Outsurance now remove that contagious disease cover from its policies, as other insurers have? “The intention of the cover was never to cover a global event such as this and although we have not removed the cover, we are reviewing it,” Outsurance told me.

A Cape Town backpackers’ lodge owner who had his business interruption claim rejected by another insurer made an interesting point:

“The insurers very quickly put their minds to changing our policies going forward from July 1 to say they would not cover any Covid-related illnesses. Does that not make one think that they thought they were actually liable to pay us out — otherwise why bother to change their policy wording?”

Will Outsurance’s stance cause problems for the rest of the industry? One of the brokers I spoke to fervently hopes so.

“The Outsurance decision is clearly not binding on the other insurers but should create a challenge for the others who are reading into their policies that the outbreak, even if proved to be within the stipulated radius, must be the direct cause of the BI.

“There is no fine print, qualification or definition in the policies that requires this direct causation to be shown or proved,” he said.

On Thursday Lee Zama, CEO of the Federated Hospitality Association of Southern Africa (Fedhasa), called on insurers to reach a settlement with claimants, rather than pursue a legal strategy through the courts, which will take months, and in some cases, years to resolve.

Failing this, Zama calls on the ministers of finance and tourism to intervene urgently. “We have seen the pandemic wreak havoc in the hospitality industry, with hundreds of businesses and jobs already lost forever.

“What these businesses urgently need is cash to pay salaries and fixed costs, otherwise more businesses will be forced to close, and more jobs will be lost.”

With so much at stake, it’s shaping up to be quite a showdown. Inevitably, some insurance players are describing Outsurance’s stance as a marketing ploy, but I daresay those who are benefiting from it don’t care one bit.