COVID-19: Battle Over Insurance Coverage

By Odimegwu Onwumere

Some insurance firms argue that they would pay COVID-19 claim, while others said they would not. In some countries like South Africa, there have been litigations with defendants and plaintiffs asking court to define whether there should be payment to the insureds or not.

In other countries like Nigeria, the umbrella body of insurers, the Nigerian Insurers Association (NIA), believed that its member-companies would honour claims arising from COVID-19.

Looking for proof to back the supposition, some experts argued that there was a similar controversy that surrounded insurance policies in Tunisia and Egypt during the Arab Spring. To the experts, decision on the matter was characterised by confusion given that every policy operated different wordings.

Some believed that they had claim on life and have not to break head on that; and however, the different wordings or policies were operated by different firms, it was a slap on their face when regulators were imposing pronouncements on the reinsurers about paying the insureds.

“On the insurer side, we are quite clear that a pandemic is not covered when it comes to business interruption (BI), but on the client side there is a lot of confusion,” said Rajiv Ranjan, CMO and executive director at East African insurer Mayfair.

Some believed that till reinsurers can do a proper audit, they will not ascertain number of policies out there. Notwithstanding, some firms had manifestly said they won’t pay for reasons best known to them. Others said they would pay and their reasons were curiously stated.

At Continental Re, Mr. Lawrence Nazare, Executive Director said: “We are reinsuring group life and the wording does specifically exclude pandemics. We did advise the market at the start of this crisis, sending out a circular making sure they were aware of the exclusion and that it would be triggered when the World Health Organisation declared the pandemic.”

Some who agreed on what to or not to pay however defined terms of their stance, saying that as it stood, there was financial market decline, reducing their ability to handle the reality.

According to analysts, “The capital buffers of some of the largest reinsurance companies have been significantly shrunken by the financial market decline seen in the last months because of the COVID-19 outbreak, potentially reducing their ability to weather any major catastrophic events that occurred.”

Confusion of what to make of the pandemic

There was serious confusion of what reinsurers on the continent would make of the pandemic situation. The pressure was on them, and there was insignificant apprehension surrounding regulators about which company would still be solvent after the pandemic.

At East Africa Re, the CEO, Peter Maina said, “We may have a problem in the future if claims start coming through. Treaties are very silent on the issue of pandemic.”

Experts believed that the pandemic had paved way for loss of premiums given that there were scarcity of businesses and this might affect businesses during the year and next year.

According to Nazare, “One of the largest insurers maintained that there is a suppliers’ extension for BI that was sold as part of their property policies and might in fact respond to COVID-19 without needing any physical damage. We are investigating.

“We do participate in some policies that were written by this insurer in Namibia, but at the moment, we don’t have a clear answer. There is a fear that in South Africa there will be significant losses arising out of that extension.”

Experts saw this as “the greater risk”. According to the group CEO and Managing Director of Africa Re, Dr. Corneille Karekezi, “No one is really working at the moment, so it is hard for us to react…The one group that is really working is the IT sector, because they have been in demand like never before as we all work from home.

“Some have asked for premium rebates, for example, but we need to explain to them how insurance works and that even if a plant is shut down it still requires protection. There has also been talk of premium relief, particularly in South Africa.”

Body of insurers agrees to pay

On the contrary, the Nigerian Insurers Association (NIA), the umbrella body of insurers in Nigeria in April, had taken a position, saying that its member-companies would honour claims arising from COVID-19, “even as it confirmed full reinsurance backing.”

“The cover provides for life benefit, so any incident by this cause will be honoured,” Tope Smart, chairman of the NIA said.

For Moruf Apampa, Executive Director, Operations, FBN Insurance, “This is a situation like no other one ever, no statistics, so I do not see any reinsurance company rejecting claims from COVID-19.”

Although, the CEO of Nairobi-headquartered Zep Re, Hope Murera said, “Sadly, we had already received their first COVID-19-related life claim to handle.”

Suing reinsurers

However, hospitality firms took South Africa’s largest general insurer Santam to court to contest its endeavours to avoid paying out for COVID-19 losses. But “Santam argued that the pandemic itself and government’s lockdown response are two separate events.”

Despite the belief that insurers were positioned to survive shocks because they have been intensely capitalised given the work of the ratings agencies, there were speculations that well-organised markets would face challenges occasioned by the volume of their books.

According to Beat Strebel, Swiss Re’s head of Middle East and Africa, “The costs of global pandemics such as COVID-19 exceed the capacity of the global insurance industry, making them effectively “uninsurable risks”.

The statement continued, “Compensating businesses for the disruption they have suffered is a job for governments, with whom Swiss Re wants to engage to create public-private partnerships. We can’t do it alone.”

An instance was given that Africa, for example, with exemption of South Africa, “event cancellation is not commonly sold and nor is business interruption, unless it has a physical damage requirement, which means few COVID-19 events will be covered.”

Claims widely disputed

Checks revealed that COVID-19 insurance claims were widely denied by insurers in South Africa, “maintaining that pandemics are not insurable events. Similar to ongoing insurance coverage lawsuits in the U.S., South African insurers and insureds are disputing what constitutes “physical damage” to trigger payouts under business policies. (A Michigan judge recently ruled in favour of an insurer, noting that physical must be “something with material existence. . . that alters the physical integrity of the property.”)

While some reinsurers were finding it difficult, by June in South Africa, as according to Bloomberg, “Momentum Metropolitan Holdings Ltd.’s Guardrisk will submit payments to policyholders who claimed business interruption losses during South Africa’s five-week shutdown beginning in late March.

“The settlement amount will cover the first three months of the lockdown. Santam Ltd., the nation’s largest property & casualty insurer, and Hollard Insurance Co said they would offer one-time financial relief to small-and-medium-sized clients. Santam, alone, has committed to 1 billion rand ($60 million) in payments.”

For Lize Lambrechts, CEO of Santam, “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.”

Experts had admonished the reinsurance sector on the continent to take a critical review of their reinsurance programmes but especially their risk exposure in order to prepare for future COVID-19 related pandemic.

According to data, “Such analysis will likely also prove necessary for purposes of (1) renewal negotiations, many of which will take place while the virus infection rates continue to rise and countries around the globe continue to enact containment measures, and (2) responding to requests by regulators and rating agencies calling for reinsurers to quantify their risk exposure.”

On the part of Dr. Karekezi, he warned that it could take the insurance industry on the continent months before it would come to terms with the effect of the pandemic on its business. He said, “We were asked by our board to stress test the possible exposures from the pandemic and they were surprised by our optimism when we reported back earlier this year. However, the problem is that today we don’t know the extent of the damage or the extent of the recovery.”

Onwumere writes from Rivers State.