What's Happening?

FIA position on Business Interruption



Many FIA members will have watched M-Net’s Carte Blanche on Sunday, 31 May. The special investigations programme investigated consumer complaints about their treatment at the hands of insurers, specifically relating to Covid-19 claims. It is impossible to unpack the complexities of business interruption cover in a 15 minute show; but more than enough time to sow seeds of doubt about the insurance industry among ordinary consumers.

From an FIA perspective we remain committed to ensuring that you, our members, and your clients, receive fair treatment from insurers. We interacted with Carte Blanche in the days prior to the programme’s broadcast to share some of our views on the issues they raised. Our position is summarised in the following statement:

“The FIA is a trade association that represents insurance brokers and financial advisers within the insurance and investment industries. Our members play a crucial role in providing customers with guidance and support in the event of a claim. We have prepared a letter to registered non-life insurers to address concerns from FIA brokers. These include the burden of proof requirements in respect of the provision ‘within a specified radius’; mid-term policy cancellations and the impact this has on cancellation of bookings cover; and the inconsistency of approach with regards to the indemnity period. FIA brokers want to ensure that there is a fair and equitable outcome for clients where cover was in place. 

We also informed Carte Blanche of our understanding of clients’ key concerns. 

1. Contingent BI with infectious or contagious disease extensions

Non-life insurers and their wholesale cover providers, the reinsurers, are of the view that infectious or contagious disease extensions will only apply where the loss of business income was due to the business being interrupted as a result of a localised COVID-19 infection. A claim results from the happening of an infection event, either at the premises of the insured, or within a given or specified radius. The main issue confronting FIA brokers and their clients is the burden of proof in respect of the provision ‘within a specified radius’.

2. Business Interruption with cancellation of bookings

BI policies that offer cancellation of bookings cover will only perform for cancellations as a result of the Covid-19 infection and not the lockdown. Non-life insurers are also cancelling cover mid-term, which means they only indemnify the client up until the date of cancellation of cover. The FIA noted that if Covid-19 is accepted as the proximate cause, the indemnity period cannot exclude the lockdown period. We use the example of a fire that occurs a week prior to lockdown, resulting in damage to a client’s premises. This client would not have been prejudiced by the lockdown period. Taking these principles into account, the FIA wants to ensure that there are fair and equitable outcomes for clients where cancellation of bookings cover was in place.

3. Business Interruption with cancellation of bookings

The FIA is concerned that there are too many different interpretations of BI policy wordings. We need to ensure consensus among insurers on critical aspects, such as the indemnity period, to assist with effective and timely settlement of claims.

FIA letter addressed to non-life insurer CEOs

We would also like to take this opportunity to share the main issues that were raised by the FIA with CEOs at non-life insurers. Our communication to them was informed by recent meetings of the Non-life Executive Committee and Board of Directors. We told CEOs that the issues around BI claims and claim settlement were “of extreme concern to the committee, board, and non-life members – all of whom are at the forefront of the client interface”.

We acknowledged the industry position that an estimated 95% of domestic BI policies would offer no cover; but we raised flags over the mixed messages and lengthy delays in insurers’ handling of claims under Contingent Business Interruption (notifiable contagious disease) and Cancellation of Bookings Extensions. Such action, or inaction, is contributing to panic and uncertainty in the market. We asked non-life insurers to:

  • Take a fair and reasonable approach to claims that are covered in terms of the policy wording, and to apply principles of equity in determining the outcome. All parties to the insurance contract will benefit from a partnership approach to the current crisis.
  • Promptly resolve all claims submitted and address any resultant matters or disputes. A consistent approach with regards the indemnity period during which cover was in place would assist in fast-tracking claims.
  • Consider entertaining cancellation of bookings claims beyond the termination date of the cover extension, as failure to do so is not fair or reasonable
  • To approach all claims or potential claims on existing policies where the extensions have been amended mid-term, in the spirit of TCF, and in a clear and fair manner. This applies particularly to cancellation of bookings claims.

The FIA encourages an open dialogue on matters that affect the insurance industry. We have therefore invited insurer CEOs to share their position on the points raised and to engage with us in an open and constructive manner, “to the benefit of our mutual customers and the greater industry”. We once again extend an invitation to you, our members, to keep us informed of the challenges that you are facing in navigating the complex world of BI and BI extensions.

We cannot afford to be complacent in light of recent events. And we cannot allow the media to control the narrative. “The growing media coverage of the perceived negative attitude of insurers towards claims settlements is causing concern throughout the hospitality sector, where many businesses face closure,” we wrote. “The industry risks suffering reputational damage as a result”.

Yours sincerely,

Lizelle van der Merwe – CEO
Tel: 012 665 0085; Email: communication@fia.org.za