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INVESTIGATION | Did you think your insurance policies would cover Covid-19 income losses? Think again!

31 May 2020 - 11:40 By wendy knowler

Insurance is mostly regarded as a grudge purchase; that is until we experience a disaster of some kind, when we’re suddenly very grateful for the safety net.

The Covid-19 pandemic has proved to be particularly financially disastrous for millions of South Africans in many ways. If ever there was an hour of need, a time for years of investment in an insurance policy to pay off, this is it.

But while many have been saved, to some extent, by those insurance nets — credit life, travel insurance, business interruption — others have discovered the protection was phantom.

Some insurance policies have not paid out for Covid-19 income losses.
Some insurance policies have not paid out for Covid-19 income losses.
Image: sergeychayko / 123rf

Credit Life policies not paying out

FNB Life announced last week that it expects to approve about R100m worth of credit life insurance claims by June for consumers whose finances have been negatively impacted by Covid-19.

The insurer, a division of FNB, says it’s processing between 2,000 to 3,000 claims a day — pre-pandemic the insurer was getting around 50 retrenchment claims a day.

In terms of the National Credit Act, credit life insurance is payable if the policy holder dies, is temporarily or permanently disabled, is diagnosed with a terminal illness, or “becomes unemployed or unable to earn an income, other than as a result of permanent or temporary disability”, in which case their outstanding balances are either settled or their instalments paid for up to 12 months.

For many people, their “other” loss of income has been as a result of the Covid-19 pandemic.

But a credit life policy hasn’t been a “save” for everyone.

If they’ve taken a pay cut instead of losing income completely, for example, thanks to the policy wording of some of the policies.

Those who took car finance loans with FNB’s car finance arm WesBank and were sold credit life insurance, have been told by underwriter Hollard that it doesn’t cover loss of income due to being forced to take unpaid leave — not even those who signed their deals since that NCA amendment of 2017.

I lost my entire salary in April, but I was told my claim is invalid because it constitutes unpaid leave, not retrenchment.
Wesbank client

Why not, Alexander B, who took out credit life insurance when he financed a car with WesBank last November, wanted to know.

“I lost my entire salary in April, but I was told my claim is invalid because it constitutes unpaid leave, not retrenchment.

“But isn’t this contrary to the amendment to the NCA of 2017?”

Not according to Hollard.

“In taking out a WesBank loan, the customer is not required to provide any form of insurance as a condition of taking out the loan and therefore Section 106(1)(a) of the National Credit Act, and the subsequent regulations do not apply.

“Neither WesBank nor Hollard dictates any mandatory benefits that the policy should have, other than life cover.

“It has always been our understanding that the 2017 regulations only apply to “mandatory credit life insurance”- the department of trade & industry has confirmed this understanding in writing.”

FNB Life will also not pay out on credit life policies of those who received TERS (Temporary Employer-Employee Relief Scheme) payments.

“Sam” took out a R150,000 personal loan with FNB in April 2019, on which credit life insurance was compulsory, by law.

After finding herself temporarily without income when her employer could not operate under lockdown, she made a claim on the policy, which was approved.

But that was reversed days later when an amount of R7,373, about a third of her salary, was deposited into her bank account with her employer’s company name as the reference.

Unbeknown to her, her employer had applied for Temporary Employer-Employee Relief Scheme (TERS) aid on her behalf.

When she protested, in a recorded phone call, an FNB employee said her credit life cover didn’t apply because of her “UIF” payment.

FNB Life said the TERS benefit “has allowed our customer to continue receiving a partial salary”.

“This means that she has not experienced a full loss of income as per the terms and conditions of our policy.

“This is different to a claimant who is retrenched and receives a payment in terms of the Unemployment Insurance Fund (UIF). In a UIF scenario, there is no income from employment and a UIF payout does not constitute income from employment.

Her credit life cover didn’t apply because of her 'UIF' payment.
First National Bank

“If our customer was receiving a UIF payout, she would have a valid claim as benefits are payable in the event of the consumer becoming unemployed or unable to earn an income.”

Sam is furious.

“The TERS payment is only a third of my usual salary, which means I can’t pay my R5,300 loan repayment instalment. And it came from government, not my employer!

“The bank forces you to take out these policies but then infringes on your rights when it comes to making a claim,” she said.

The lesson: credit life insurance is a really good idea, but choose wisely — it doesn’t have to be with the insurer the credit provider is suggesting; it could be an independent company such as Yalu. And make very sure you know what circumstances you are and aren’t covered for.

Travel insurance not covering cancellations

One of the things which travel insurance covers is cancellation. So you’d think that if your international travel plans are cancelled due to various state imposed restrictions, you’d have a successful claim.

Not necessarily.

Lupi and Wilma Ciaglia of Umhlanga paid Imagine Cruising R59,000 for a Mediterranean cruise — departing in May — to celebrate their 50th wedding anniversary.

Imagine Cruising refused to give them a refund when the cruise was cancelled, wanting them to be content with a credit voucher for a future cruise they had no intention of taking, given their age and the fact that the virus is known to spread rapidly on cruise ships.

The Consumer Protection Act entitles the Ciaglias to a refund, under the circumstances, but rather than wage that battle, the couple claimed on their travel insurance with Bryte, which describes itself as “the premier, proactive commercial risk specialist in Southern Africa”.

Their claim was rejected on the grounds that the policy’s terms and conditions “expressly outline that insurance does not pay where the travel service providers have offered compensation — including credits and vouchers — to the policyholder”.

When I pointed out that the voucher was of no material value to the elderly couple, given that they are not prepared to risk their health in order to use it, and they’d spent that money to celebrate a specific event, Bryte said it would reassess the case.

The company subsequently honoured the policy, refunding the Ciaglias all but R1,000 of the R59,000 they’d paid for the cruise, the deduction being a policy excess of R500 per person.

Others, particularly the elderly, who have had their travel insurance claims rejected for the same reason, should consider re-submitting their claims.

Hospital industry also suffering

The hospitality industry has been crippled by the restrictions imposed by the pandemic, restaurants, guest houses and B&Bs having lost earnings for some time before the March 27 lockdown.

Many had business interruption policies which didn’t include an infectious diseases clause, so they had no claim, but even for those which did have them — specifically Covid-19 clauses — their relief was short-lived.

Warwick Graham, who owns a guest house in Westville, KwaZulu-Natal, is one of them.

His Santam business interruption policy states that claimable events include his business being interrupted by a “notifiable disease occurring at the premises, or within a 50km radius of it”.

That 50km radius stipulation appears to be standard in those policies offering Covid-19 cover.

We provide cover for a business that is shut down directly as a result of a contagious disease.

Graham’s claim has been rejected by Santam, not because he did not suffer cancelled bookings as a result of Covid-19, from before lockdown, and not because he was not forced to shut his business as a result of a government-enforced lockdown, but because the circumstances of the pandemic do not, apparently, match the policy wording.

It’s not enough for there to have been a confirmed case of Covid-19 within 50km of Graham’s guest house, Santam said.

Only if he’d been forced to shut his doors because a guest or staff member or someone within 50km had tested positive for Covid-19 would he have been paid out.

Likewise, only if he’d had a cancellations — requiring him to issue a refund — because the guest was forced into quarantine by health authorities, would that lost income have been paid.

“The national lockdown regulations define exactly what is meant by a quarantine and there is a clear distinction between the general lockdown and a quarantine,” Santam’s Hospitality & Leisure Insurance division told Times Select.

“The scope of cover is intentionally restricted — it was never the intention of the extension to provide cover for a pandemic event affecting the whole of SA.

“We provide cover for a business that is shut down directly as a result of a contagious disease.

“If we were to charge premiums based on the risk of a national lockdown or any form of mass governmental action, then insurance would be unaffordable.

“This is why it was never the intention of the extension to provide cover for a pandemic event.

“If the insured event was a national lockdown or governmental action, then we would acknowledge liability, but this is not what is covered by the policy.”

Santam — SA’s largest short-term insurer — said it would be paying “a large number” of claims for businesses whose losses were “as a result of Covid-19 itself and who therefore meet the requirements for claims defined in the policy contract”.

“The pandemic has created a lot of uncertainty in the insurance market.” Santam said.

“The pandemic exclusion that has now been included in our policies was put there to remove any form of doubt about what cover we provide to our policyholders.”

Other insurers have also now excluded pandemic cover from their policies.

The Financial Sector Conduct Authority (FSCA) and Prudential Authority’s (PA) recently issued a statement outlining how they expect insurers to “communicate with policyholders in respect of business interruption claims related to Covid-19”, following complaints received by businesses.

I suppose when we are all in the soup kitchen queue together, along with Santam employees, it will make for interesting discussion on what could really have been done.

“Should the insurer fail to pay a claim or the interpretation of the wording or exclusions are challenged, the policyholder may, if the claim is within the jurisdictional limit of the Ombud, approach the Ombud for appropriate relief,” the authorities advised.

“In the case of a claim which exceeds the Ombud’s jurisdictional limit, the policyholder may approach a court of law for appropriate relief and these options should be made clear to the policyholder.”

On the issue of insurers now excluding infectious diseases cover from their policies, the authorities said: “We expect insurers to consider whether there is a term in the insurance contract permitting unilateral variation of the terms and conditions ... and whether insurers have balanced the interests of policyholders with that of their own interests and other relevant stakeholders.”

Graham, meanwhile, is philosophical about the rejection of his claim.

“I suppose when we are all in the soup kitchen queue together, along with Santam employees, it will make for interesting discussion on what could really have been done.”

*TimesLIVE has learnt that some insurers have accepted liability for business interruption losses due to the government restriction on their operations, but only up to the lockdown of March 27, creating a precedent.