As coronavirus threatens jobs, some insurers halt sales of retrenchment cover

Some of South Africa’s insurers have stopped selling retrenchment cover as the novel coronavirus threatens to accelerate the rate of unemployment in the country. During a webcast with financial advisers, insurer FMI – which is part of Bidvest Life Limited – said it had received communication that some of the industry players were no longer accepting new applications for retrenchment cover.

This comes at a time when preliminary estimates published by the South African Reserve Bank on Tuesday show that the country could lose about 370 000 jobs this year.

Insurance to cover retrenchments is not widely available in South Africa. Of the big five listed insurers, only Liberty and Old Mutual offer it. Liberty also underwrites, another smaller insurer that offers retrenchment cover. This insurance product normally covers a portion of people’s salaries, usually up to 75{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} for six months after involuntary retrenchment.

Liberty pauses retrenchment cover

Liberty confirmed on Wednesday that its retrenchment cover is no longer open for new business.

“Liberty confirms the temporary suspension of the sale of retrenchment and the shorter-term insurance benefits covering loss of income. Given the uncertainty related to the Covid-19 pandemic, it is very difficult to assess the potential risks and related cover for new clients,” said David Jewell, the group executive of retail solutions at Liberty.

He said the insurer’s focus right now is on ensuring that it meets all valid claims from current clients and added that existing benefits will remain the same. Old Mutual had not confirmed at the time of publishing the story if it was still selling its Greenlight retrenchment cover.

As for banks, most provide cover to pay customers’ monthly debt instalments in the case of retrenchment. But Absa, which also pays a limited income benefit – only R5 000 for two months – said it is still accepting new applications.

“However, consumers should take note that some of these products have a standard three- to six-month waiting period,” said Dushen Naidoo, managing executive of insurance at Absa Retail and Business Bank SA.

New customers unlikely to be covered for Covid-19

Samuel said FMI was also still offering retrenchment cover to new customers, but only certain people would qualify for it.

These are full-time and permanently employed individuals who received a salary for at least the past two years. But someone who changed employers recently and has not received a salary from the same employer for at least a year won’t make the cut either.

People working in mining, construction and fishing industries are completely excluded, even if they are in supporting roles like IT, states FMI’s criteria. A standard six-month waiting period and several other conditions also apply.

“Yes, understandably there are more Ts and Cs with this benefit, but I just think it’s important that people know the terms and conditions upfront to avoid disappointment at [the] claim stage,” said Samuel.

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