A South African regulator warned insurers to stop broadly rejecting claims from businesses seeking to cover losses because of a lockdown to curb the coronavirus.

“The Financial Sector Conduct Authority is concerned about the behavior of some insurers who are deliberately avoiding paying business-interruption claims where no grounds exist to do so,” the Pretoria-based regulator said in an emailed statement. “The national lockdown cannot be used by any insurer as grounds to reject a claim.”

The FSCA’s rebuke comes as the industry faces legal challenges for refusing to pay out customers on the grounds that business interruption is usually triggered by physical damage, such as a fire. An initially strict five-week lockdown started on March 27 halted everything but essential businesses before restrictions were slowly eased.

“Ultimately the courts will decide,” said Wayne McCurrie, a portfolio manager at FNB Wealth and Investments. “The FSCA’s statement has no bearing on the terms of the policy contract.”

Insurance Claims Africa said that companies it is representing in the tourism and hospitality industry are owed as much as 4 billion rand ($240 million) by their insurers for losses incurred as a result of restrictions in the wake of the Covid-19 pandemic.

A Cape Town court on June 26 ruled in favor of a restaurant seeking payment from Momentum Metropolitan Ltd.’s Guardrisk Insurance Co. Guardrisk is “in the process of engaging with our legal team to study the judgment and consider the next steps,” a representative said.

Virus Is ‘Unquantifiable’
If insurers were forced to pay business-interruption claims related to South Africa’s lockdown, premiums would jump and insurance would become unaffordable, said Casparus Treurnicht, a portfolio manager at Gryphon Asset Management.

“Covid-19 is unquantifiable,” he said. “It’s not something where someone was negligent or a fire caused a major machine to fail and therefore the business needs to shutdown.”

With the world becoming more integrated, other pandemics can follow, he said. “A question we must also ask is whether the government did the right thing” by shutting down the economy, Treurnicht said.

The dilemma has spurred the South African Insurance Association into creating a think tank that will consider mitigation measures to cover events the industry cannot insure, such as pandemics and climate-change risks.

The group will look into existing models in South Africa and abroad, Viviene Pearson, the association’s chief executive officer, said in an email.

Among those would be the South African Special Risks Insurance Association, a government-owned insurance company, that covers politically-motivated malicious acts, riots, terrorism and public disorders. It was developed during apartheid when the market was not willing to cover political risks.

The association will submit its proposals to the National Treasury and finance-sector regulators to “collectively address this challenge,” Pearson said.