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.

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.