South African regulators the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) have told non-life insurers to make one-off relief payments to businesses hit by COVID-19 losses as the market awaits a court decision on business interruption (BI) claims.
The FSCA explained that these payments would allow businesses to continue running while legal clarity on the issue of virus-related BI claims is sought.
Importantly, policyholders will not be required to return the payments if insurers win in court, although the value will be deducted from the total claim if policyholders win.
The regulators hope this action will help to restore trust in the insurance industry, which has come under fire for refusing to pay out on claims linked to the pandemic.
The industry argues that most policies were never designed to cover risks as large as a global pandemic, and says the government should be responsible for any BI losses caused by lockdown measures.
The FSCA and PA have told insurers to focus mainly on small businesses that have seen a significant reduction in revenue due to the pandemic, with the exact size of each payment to be decided on a case-by-case basis.
Analysts believe the nature of these payments means some insurers will not be able to claim under their reinsurance programs, and there are concerns that the move could bankrupt some firms.