South Africa’s Prudential Authority does not expect business interruption claims linked to the pandemic to pose any major systemic risk to the country’s insurance industry.
According to a report by Blomberg, the matter is a market-conduct issue, which the Financial Sector Conduct Authority (FSCA) of South Africa oversees.
“At this stage, we are not of the view that the business interruption insurance issue has systemic implications for the industry,” Prudential Authority told Bloomberg.
The regulator is in talks with the FSCA and insurance companies on claims from policyholders who incurred losses when they were forced to close because of a national lockdown to curb the coronavirus.
South African insurers are rejecting claims saying pay-outs are only triggered by physical events at a company’s premises.
FSCA in a press release on 9 July 2020 had expressed concern about some insurers deliberately avoiding paying business interruption claims where no grounds exist to do so. It had said “The national lockdown cannot be used by any insurer as grounds to reject a claim.”
It has asked the industry to stop broadly rejecting claims related to COVID-19 lockdown from businesses, after a Cape Town court ruled against one local insurer.
In the UK, some insurers are starting to acknowledge that payments may be unavoidable. If a High Court hearing on policy wording goes against insurers, “it will have far-reaching consequences for losses, capital and valuations,” in the country, Bloomberg Intelligence credit analysts Arun Kumar and Zheli Zhang said in a note.
South Africa’s Prudential Authority last month suspended the issuance of new insurance licenses for six months because of the pandemic.
