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Not just another COVID update

 1.      Right, let’s all understand that the country is in very serious financial difficulties because of this thing.

 That’s you, the private individual who if you’re lucky might still be getting your wages/salary but for the vast majority you have no money coming in and no spare cash lying around to keep you going. That means no food on the table, no money for rent or bond, water or electricity, car repayments. You might also be lucky to get some of the relief fund if you have no income. You might also be lucky to get a repayment holiday on your finance and yes on your insurance too but here don’t kid yourself – they are not giving you anything. They will get it back over the rest of your payment term. They are not being kind to you, they are the corporates who hold the power over you. Sorry but it’s just business

 That’s also you, the small business owner who hasn’t sold or made anything for 2 months. Trade has literally dried up. But you must still pay your expenses. You might be trying to help out your staff but there is only so much you can do. With no income you are probably facing the loss of your business.

 When you look at the big companies like Edcon in business rescue how are you the little guys expected to make it through.

 The government is receiving donations and shuffling the cash around to keep the wheels turning but the economy is hurting real bad.

 So is there a solution?

 Let’s look at the short-term insurance industry.

 If this was a major storm or flood they would cry a bit and cough up. That’s what they are there for, and then increase your premiums next year. But hold on don’t think they pay it out of their own pocket. Oh no they are smart these guys. They lay off cover for catastrophes to reinsurers who pay them so they can pay you

 Losses will come from the loss of income / business interruption caused by the lockdown which is caused by the virus. As you have probably heard by now, most business interruption insurance policies in South Africa require there to be physical damage before they respond. The insurers and the regulators say the coronavirus will not trigger a loss or damage.

A small percentage of policies usually for the hospitality sector (restaurants, hotels, B&B’s game lodges etc) might have been fortunate to have cover extended for contagious or infectious disease – and some payments have been made for cancellations. But guess what, when it comes to loss of income, those policies won’t respond either because they say

a)      The loss is caused by the lockdown, the lockdown isn't the disease

b)      The outbreak of the virus must be on the insured premises or within the vicinity of the insured premises

The Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) have separated the types of loss into standard insurance policies and those with the contagious and infectious diseases but what about non-standard policies that cover loss not just damage? The regulatory authorities say they will not force insurers to pay or to retroactively cover Covid-19 losses, because that would put the insurers under huge financial strain (but isn’t that where you are right now) and ultimately threaten policyholders -????

 This being the case where are the huge losses the insurance industry say they are facing? Non-existent.

 Au contraire my friend, the insurers will be saving money hand over fist because there are virtually no other claims during this period because no-one is working, no-one is driving except to the shop and back.

 It was bad enough for businesses and consumers before but this lockdown has put the last nail in the coffin for many (excuse the unfortunate pun)

 This COVID-19 virus and its consequences are completely new and the insurers say that they never intended to provide cover for a pandemic. That’s why they are rejecting claims even if you bought the extension to your insurance for contagious and infectious diseases. It did not exist until now.

     2.      The insurance industry could through their association could respond not only with comforting, reassuring words but acting constructively to find a solution to ease the financial burden of the nation. Short term insurers are one part of the financial services sector which controls mega billions of funds – your funds, that put them where they are. Now you are in dire straits where are they?

As an industry they are seemingly quiet on this issue. Sure many of the announcements promise to pay claims where all the conditions have been met. If not it is your responsibility to prove your claim. That takes time and money which right now you don’t have.  

The 20-25% discount on motor premiums is a drop in the ocean. For 2 months the number of vehicles on the road has dropped massively and so have the claims they would have been paying which is probably a couple of billion a month. Their risks have reduced - goods vehicles for non-essential businesses are idle, taxis on the road are limited, factory machinery is idle, laptops are not being carried around etc.

They have been very quick to issue notices immediately excluding any loss due to infectious or contagious disease. Perhaps by implication there was cover before?

Do they not have a moral obligation to the businesses and consumers who have made it possible for them to consistently grow their revenues into the mega billions? Short term gross premiums alone are more than R100billion and have reached the point where short term insurance accounts for approx. 23% of financial assets in South Africa and the financial services sector contributes about 10% of the country’s GDP. That’s a moersa load of money

 Don’t forget that insurers hold billions of Rands in reserve for catastrophe losses and they also buy catastrophe reinsurance protection. Understood this is an international event and there are catastrophic losses like earthquakes, tsunamis, hurricanes, tornados, cyclones even here in SA we have national catastrophes some serious storms and floods (one in a hundred years which seem to occur more frequently but that’s another story)

 So with what they have received in premiums, hold in reserves and saved in claims costs the last 2 months, there should be quite a tidy sum of money that would help a lot of people.

  3.      Now here’s a suggestion.

Where a company bought business interruption cover (consequential loss, loss of profits etc) insurers should accept the loss as part of that cover and pay at least the standing charges of the company they insure. What’s the biggest single expense of a company – right, the salaries /wages. And what gets cut first – right again, the salaries/wages of the staff. Such a claim payment would enable the company to keep going by continuing to pay salaries /wages which would in turn allow the staff to continue to pay their personal expenses which would then avoid the need for a large portion of the relief fund. Bear in mind that private expenses have also reduced considerably due to the lockdown.

From everything that has appeared in the media it is unlikely that short term insurers will pay anything for losses as a result of the COVID-19 virus/lockdown although as we said there has been some compensation paid for cancelled bookings but loss of revenues are not being paid.

 When rejecting claims you are given the option of requesting the Ombudsman for Short Term Insurance for assistance but well now, the Ombudsman does not handle Loss of Profits claims!! The other option you have is going the legal route in which case hopefully you have lots of money for the fees and lots of time for the waiting.

 That’s why there is now a number of class actions being prepared on behalf of uncompensated Insured’s against their insurers. This includes South Africa primarily for the hospitality industry and their extended cover for contagious and infectious diseases. Unfortunately this will take time to resolve, time that consumers don’t have let alone the time to generate new income to recover from their losses

 The nation needs assistance now immediately and insurers do have the resources to pay for national catastrophes. The general reaction seems to be that this would put the insurance companies at risk financially but isn’t that where you’re at? They have the resources to recover but most small businesses and private individuals don’t.

 The insurers could then consolidate the losses they have paid, seek recourse from their reinsurers (as they would for any other catastrophe) but it seems their reinsurers are also rejecting claims and they are the ones driving the total exclusion of losses that have anything to do with contagious or infectious diseases or pandemics. Representation can then be made centrally to the government which is actually responsible for the national lockdown and the consequential losses as a result thereof.

To ease the financial burden on the government, insurers (and their reinsurers) could be reimbursed by the government by way of tax concessions and allowances for say the next 5 years

This gesture would do wonders for their (insurers and government) image neither of which look very rosy. Maybe it’s too late to change the negative perceptions and the longer it continues, the worse the insurers reputations get.

 The suggestion actually follows what a number of US states have decided.

 Eight U.S. states have introduced legislation that would mandate insurers to pay for COVID-19 related losses under their business interruption policies, mainly to small businesses, despite exclusions. Insurers there would be allowed to seek reimbursement from the state.

New Jersey was the first to do so followed by New York and Pennsylvania. Similar legislation has been floated in Louisiana, Ohio, Massachusetts and South Carolina

Also consider that French insurers have said they would put 3.2 billion-euros on the table including a 1.5-billion-euro investment program and donations to the government’s aid fund.

 SA scored a lot of points when the president introduced the lockdown. So why can’t we follow up with something more constructive for the economy? Regrettably we seem to be losing face especially with the High Court’s decision that the lockdown regulations are uncosntitional

[insuranceexplainedblog]

What is insurance?

To many it has become a dirty word conjuring up feelings and thoughts of mistrust, dishonesty, being taken advantage of, a rip off, a scam. Funny but when you Google “scam” it comes up with “an insurance scam”. This works both ways i.e. for you and for the insurance company. The insurance company thinks you are ripping them off when you want to claim, that you lied when you took out cover so they record everything you say. You most certainly have some feelings in this direction when they haggle over your claim by digging up anything and everything they can find to avoid paying it or to reduce what you (eventually) might get. Whatever happened to trust?– see below

To go back in time this thing called insurance started when people were honest and believed in their credo called “good faith”. You trusted them and they trusted you. That seems to have flown out the window. I’ll look at this in more detail later.

So it began a loooong time ago, a very long time ago, hundreds of years ago and yes you might think it hasn’t changed much since then because it is so out of date. As the commercial and industrial world developed so it created a need for certain protection.

One need was for ships and their cargo. There is some theory that at least a form of marine insurance began a couple of thousand years’ ago but the early English history of marine insurance goes to the Elizabethan Act of 1601 which is highly memorable as their first statute-book regarding marine insurance.

Another need was after the Great Fire of London, which occurred in 1666 destroying about half of London including St Paul’s Cathedral. Building insurance and then fire insurance was created. For the man who created it this was not solidarity but business pure and simple, to make money – not much has changed in that direction.

Then in the 1800’s with industrialisation through factories, railways and mining came the need for accident and other classes of insurance.

Then later at the end of the 1800’s and early into the 1900’s came motor insurance, third party and employers liability insurance and then aviation insurance and so on

We seem to have forgotten to meet the changing needs of the consumer because despite the dressing up with fancy bows, bells, added benefits, goodies and freebies, bonuses and all pretty things to attract you, the type of cover available hasn’t changed much over the last few decades.

Insurance is a contract (the policy) in which it says in return for a premium (your hard-earned bucks) an insurer indemnifies an entity (that’s you) against losses from specific events.

There are a couple of key words that might cause some confusion to the average person so I’ll try to explain.

An insurer according to the Insurance Act:

is registered or deemed to be registered as a short-term insurer, and is authorised to carry on the kind of short-term insurance business concerned, under this Act the object or result of which is that another person will enter into or enters into, or offers to enter into, renew or vary a short-term policy, other than a short-term reinsurance policy, in terms of which the first-mentioned person undertakes to provide policy benefits to the other person.

Difficult to read? That’s what it says! I hope you understand it. No offence to anyone if you don’t. You probably need a major in English language to get it.

Simply put an insurance company must be registered and authorised to provide insurance.

A premium is the amount you pay to the insurance company for the indemnity they provide.

Indemnity is said to be the compensation they pay  to put you in the same (financial) position after an event as you were  in before the event, so that you neither lose, nor profit. Hmmmm I’m not sure that actually happens but we can discuss that another time.

The specific events are extensive and somewhat technical so we can deal with those in another issue.

 The next article will give some amusing and satirical words from Lye Cheet and Steele Inc