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South Africa’s Santam defends position on COVID-19 claims

By David Whitehouse
Posted on Monday, 18 January 2021 12:02

Santam HQ in Cape Town. REUTERS/Mike Hutchings

The Africa Report’s latest article on Santam’s stance on paying COVID-19 business interruption claims has prompted a detailed response from the company, South Africa’s largest general insurer.

Santam has acknowledged that it is liable for business interruption claims resulting from COVID-19 after unsuccessfully arguing that the pandemic and the lockdown response were separate events. It says it will offer hospitality and leisure customers a “full and final” settlement to cover three months of losses.

  • Yet many policyholders have cover which they believe run for six, 12 or 18 months.
  • “The policyholders have, in our view, misread their contracts,” says Thabo Mabaso, Santam’s head of corporate communications in Cape Town. “What they believe their contracts to say and what is actually written in the documents are two very different things.”
  • If large numbers of policyholders are misreading their contracts, then that is a problem for Santam. A well-established legal principle is that any ambiguity in insurance contracts must be decided in the favour of the policyholder.

READ MORE: South Africa’s Santam seeks to limit Covid business pay-outs to three months

The issue goes beyond the question of how much businesses get paid. At stake is the credibility and future growth of the insurance industry. Africans suffering disruption to their incomes have ditched insurance policies as a means of saving cash.

In Kenya, data from the Insurance Regulatory Authority shows that policy cancellations and withdrawals increased by 26% in the first half of 2020. Resistance by insurers to paying out on pandemic policies creates the risk that such customers will never return.


In November, the Western Cape High Court ordered Santam to pay plaintiffs Ma-Afrika Hotels and Stellenbosch Kitchen over a policy period of 18 months.

Businesses, Mabaso says, generally have an insurance policy that covers property damage by fires, floods and other physical perils. The indemnity period in the standard cover provided by the business interruption section policy in the Ma-Afrika policy is 18 months.

Some policies also cover loss of revenue caused by other events beyond physical damage, including infectious diseases, says Mabaso.

  • “The indemnity period in respect of this extended cover is clearly stated as three months in the relevant Santam policies. It is therefore not true that the policies for our hospitality and leisure division impacted by the recent judgements carry longer indemnity periods.”
  • “It is Santam’s view that the Western Cape High Court erred in its judgment in applying an 18-month indemnity period across the entire policy.” Santam is seeking leave to appeal the ruling.

Legal certainty

Santam believes there is legal uncertainty over the indemnity period. The company uses legal uncertainty as a way to justify delaying payment, yet when it disagrees with an aspect of a court ruling, simply offers “full and final” settlements.

In a separate case involving Café Chameleon and Guardrisk, the Supreme Court of Appeal issued its judgment on Dec 17. “Only at that point could Santam consider the matter as having reached final legal clarity,” says Mabaso. “Following engagement with its stakeholders, Santam announced on 4 January that it would start assessing business interruption claims that were specifically impacted by the judgments.” Stakeholders, of course, means reinsurers.

READ MORE: South Africa VS Coronavirus: Insurers face crisis of confidence

Santam says that while awaiting legal clarity, it has paid out 1bn rand ($65mn) in interim relief to 2,500 small and medium-sized companies.

  • “Businesses that have incurred claimable losses and have gone into liquidation post-March 2020 can still claim against their policies with contingent business interruption extensions,” says Mabaso.
  • “The process for seeking legal clarity was agreed by all parties concerned and therefore it is untrue that Santam has attempted to delay the process,” says Mabaso.
  • Policyholders, of course, had no choice but to embark on a long legal process given the company’s refusal to pay.

Bottom line

Whatever the final outcome on indemnity periods, the wrangling has damaged prospects for expanding South African insurance penetration.

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