Piggybank
(Peter Cade, Getty)
  • Most business interruption insurance policies in South Africa require physical damage before they kick in. The coronavirus will not do it, regulators say.
  • A small percentage of policies do cover pandemics – but those aren't necessarily paying out for damage caused by the lockdown, because the lockdown isn't the disease.
  • The Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) say they will not force insurers to retroactively cover Covid-19 losses, because that would ultimately threaten policyholders.
  • For more stories go to www.BusinessInsider.co.za.


Only a small percentage of business interruption insurance policies in South Africa have extensions that specifically cover infectious or contagious disease, the Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) said in a joint statement on Friday.

But even the small proportion of businesses that bought insurance against a pandemic are not yet seeing payouts for all the damage done by the coronavirus disaster – because damage due to the national Covid-19 lockdown is not the same thing as damage due, directly, to a disease.

After talking to insurance companies, they "understand that insurers and reinsurers are interpreting the infectious/contagious disease extension and in relation to the Covid-19 pandemic to apply only where the loss of business income was due to the business being interrupted as a result of a localised Covid-19 infection and not as a result of other related actions such as lockdown introduced by government," the regulators say.

Some insurers are still seeking legal advice on such claims.

The two authorities warned insurance companies to give regular feedback to policyholders who had lodged such claims – and promised to check that this was done.

Insurance companies won't be forced to pay

But standard business interruption policies, the regulators said, require physical damage to business premises before they pay out.

"In the absence of such physical damage, an insurer is not contractually bound to provide policy benefits to a policyholder," they said. "Covid-19 will not be covered in the standard policy and the Authorities see no reasonable grounds to intervene since this is what a policyholder and insurer agreed upon when the insurance contract was concluded."

Nor will they retroactively try to force insurance companies to pay out for Covid-19 where they aren't contractually obliged to do so, said the FSCA and the PA.

"Requiring insurers to cover such claims could create material solvency risks and significantly undermine the ability of insurers to pay other types of claims. Such initiatives could ultimately threaten policyholder protection and financial stability, further aggravating the financial and economic impacts of Covid-19."

Meanwhile, some insurance companies are trying to opt out of pandemic insurance entirely, in policies already in force. "Various" insurers had told the FSCA of "their intention to endorse [business interruption] insurance policies by adding general exclusions for infectious or contagious diseases," the PA and FSCA said.

"Whilst the Authorities are still engaging with insurers on these notifications, it is clear that most insurers intend withdrawing cover related to infectious or contagious diseases mid-term," the regulators said.

They put those insurance companies on notice to check they had the right to unilaterally change terms, to stick to notice periods, to make sure they are treating customers fairly – and to be sure they could prove a change in terms had been fair.

(Compiled by Phillip de Wet)

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