Santam commits R1 billion in relief to contingent business interruption clients

Santam, South Africa’s largest short-term insurer will pay up to R1-billion in urgent relief to policyholders in the hospitality, leisure and non-essential retail services industries who have the Contingent Business Interruption (CBI) extension in their policy cover with the company. 

Lizé  Lambrechts, the Santam Group CEO, said the company recognises that these are extremely difficult times for businesses and is determined to assist policyholders in these industries, focusing mainly on small and medium sized commercial policyholders who are the most vulnerable. The relief payment is the result of Santam’s proposal to the regulators, aimed at finding a way of assisting policyholders in these tough times. The company will commence the relief payments from the first week of August 2020.              

The payments will be made to existing policyholders who have claimed for losses during the COVID-19 pandemic period and have CBI extensions in their policies.  The aim of the relief payment is to support policyholders who are in financial distress and does not serve as indemnity under a policy contract.

The R1 billion relief equates to 70% of two months’ value of the sum insured for Santam’s policyholders in the identified industries. The two months are indicative of the period where most businesses were impacted by the restrictive trading environment imposed by the Level 4 and 5 lockdown in the country.  The 70% is based on a view that the businesses would have experienced variable expense savings during the lockdown. The relief payments will be set at a minimum of R25 000 and a maximum of R1.5 million for individual CBI policyholders.

“We are offering this relief because we acknowledge that the lockdown and COVID-19 pandemic have had a devastating impact on our economy. After careful consideration of the situation, especially the unforeseen length of the lockdown and the ongoing restrictions that are impacting businesses, we decided to assist with a substantial payment commitment to help sustain our policyholders in the most impacted industries,” said Lambrechts.  

This relief payment does not impact the insurer’s efforts to obtain legal clarity on its policy interpretation through the courts. 

“We remain confident in our interpretation of our policy wording as it pertains to the CBI extension in our cover.  However, we also realise that our clients need financial support urgently and that the ongoing court cases on the interpretation of the policy wording may be lengthy,” she added.

Policyholders will have to register a claim in order to qualify for the relief. The relief payment is mainly aimed at small and medium sized commercial policyholders in the hospitality, leisure and non-essential retail services industries that have the CBI extension and suffered a loss due to the national lockdown. Large corporate clients are excluded due to the bespoke and complex nature of insurance policies for such businesses.

To qualify for relief payment, the policyholders must meet the following criteria:

• They must operate within the industries identified for relief;
• They must have a Santam Commercial or Santam Hospitality & Leisure policy;
• Their policy must have the CBI extension;
• The CBI extension must have been taken out before 18 March 2020;
• The policy must still be in force;
• The policyholder must have registered a claim; and
• They must not be an essential service provider allowed to trade during the lockdown.

With regard to the court case set for 1 September 2020 at the Western Cape High Court, the company said that it was important that it continues so that all stakeholders can obtain legal certainty on the policy interpretation of CBI insurance cover. 

“We hold a firm view that our CBI policy wording is very specific and only covers businesses for interruptions as a result of the outbreak of a disease at a local level, or within a specified radius,” said Lambrechts.

She added that due to the difference of opinions in the interpretation of CBI cover, it was in the best interest of all parties, including clients, insurers and reinsurers to obtain legal certainty from the courts. The resolution of this matter will without doubt have a significant and lasting impact on the entire insurance industry. It is also notable that the same discussions are happening globally and the situation in South Africa is not at all unique. 

Should the courts ultimately rule in Santam’s favour and determine that the lockdown is not an insured peril, then the amount paid will still be considered relief payments in respect of registered claims to policyholders and will not be recovered from policyholders.  However, in the event that the courts rule against Santam and determine that the national lockdown is an insured peril, the amount will become an advance payment against any finally determined claims against Santam under the CBI extension. From a Santam perspective, this approach is a demonstration of the company’s brand promise of Insurance Good and Proper, Lambrechts added.

“As Santam we pride ourselves on being a responsible and patriotic corporate citizen. Over our 102 year old history, we have built a reputation of always acting with integrity and in the best interests of our clients and stakeholders,” she said.

The insurer has to date also contributed more than R400-million in COVID-19 funding to provide relief through premium reductions, premium refunds as well as direct support to insurance industry business partners, corporate social responsibility and Government initiatives.

Santam has engaged extensively with the Financial Sector Conduct Authority (FSCA) with the view to ensuring that the relief payment is fair towards its clients.  The FSCA said it was pleased with the proposed relief payment from Santam and also supports the importance of obtaining legal certainty from the courts.