Santam’s travel insurance division has withdrawn its insolvency cover benefit on South African Airways tickets.
The short-term insurance company confirmed to Fin24 via an emailed statement on Friday that the withdrawal was effective from Thursday, November 28, 2019.
Fin24 previously reported that travel group Flight Centre South Africa had stopped selling SAA’s tickets due to ongoing concerns regarding the financial stability of the national carrier.
In a letter to its customers, Flight Centre said that it was informed by its preferred travel insurance provider – Travel Insurance Consultants (TIC), which is a division of Santam – and their underwriters that they were “no longer willing to cover SAA” under their travel supplier insolvency benefit. Flight Centre said it had been advised other global insurers had taken a similar approach.
In its statement, Santam said the action was triggered by a decision by TIC’s international re-insurer to withdraw cover “based on the worsening risk outlook and potential bankruptcy” of SAA.
“Any person travelling on SAA from 28 November 2019 onwards can still purchase a TIC policy and be covered for all the benefits the policy offers, except the travel supplier insolvency benefit,” Santam said.
According to Santam, the travel supplier insolvency benefit covers the failure of an airline when it declares bankruptcy.
Risk ‘too significant’
“In the event of a failure the policyholder can claim the cost of their ticket to the maximum of the insured benefit limit, in accordance with the policy terms and conditions,” Santam said.
“In order to cover itself, TIC re-insures such cover with its international re-insurance partner that specialises in the assessment of risks in this market.
“The risk associated with SAA’s going-concern status has been an issue for many years. However, in light of recent events, the risk is now considered to be too significant by re-insurers to continue cover for new ticket sales,” the statement read.
Santam gave its assurance that TIC clients who purchased insurance policies with the travel supplier insolvency benefit, before November 28, 2019, will still be covered until they complete their travel journeys.
“The decision to withdraw cover was not taken lightly. The management of TIC has been in constant communication with the leadership of SAA concerning the challenges facing the airline to try and find a solution that avoids TIC withdrawing cover.
“TIC will monitor SAA’s progress as it implements a strategy to improve its situation,” Santam said.
TIC and its reinsurer would consider reviewing their decision depending on whether SAA gets the “necessary support” and returns to profitability.
Spokesperson of Hollard, Warwick Bloom, confirmed to Fin24 by phone on Saturday, that the insurance group similarly withdrew the insolvency cover benefit on SAA tickets. The withdrawal was effective from Friday. “We have only withdrawn that part of the cover, the other benefits still apply,” he said.
Regarding Flight Centre’s decision to stop selling SAA tickets, the airline’s spokesperson Tlali Tlali said that SAA would communicate its response in due course.
Earlier this week, the Department of Public Enterprises issued a statement warning that there had been a sudden deterioration in the airline’s finances as a esult of booking cancellations following a strike, Fin24 previously reported. The department said it was working with SAA to “formulate immediate actions” required to provide support for SAA to continue its business.