Hollard withdraws financial default cover for travel on SAA

Hollard Travel will no longer provide travel insurance cover related to the potential financial default of South African Airways (SAA).

It was announced in November that SAA is in financial trouble and struggling to pay salaries. The airline also suffered an eight-day staff strike in November 2019, which it estimated cost R52-million per day.

Following the announcement of SAA’s financial situation, Hollard has decided that the financial default benefit in its travel covers will exclude any claims related to the potential financial default by SAA.

It is important to understand that “insolvency cover” (or “supplier financial default”, as it is called in Hollard’s travel insurance policy), is only one of a long list of benefits secured when obtaining travel insurance from Hollard (and most other travel insurers). All other benefits, such as cover for medical emergencies, delays, missed connections, baggage damage/theft, personal accident and personal liability still apply, and customers can still purchase such cover from Hollard when travelling on SAA.

To the extent that these other important and valuable benefits continue to apply, Hollard expects the removal of one aspect of cover to have a limited effect on travel insurance purchases. While Hollard will lose some premium income through people opting not to take up Hollard’s travel insurance offer, this loss is far less than the expected claims that would be incurred if the benefit was still in place and SAA became insolvent.

This decision applies specifically to policies purchased from 15 November 2019. However, those policyholders will still qualify for Hollard Travel’s “cancel for any reason” cover if they purchase either comprehensive or business cover within 24 hours of paying their trip deposit for their policy.

Travel insurance purchased from Hollard Travel before 15 November 2019 will still enjoy financial default cover related to SAA.

Hollard’s decision was based on the following basic insurance concepts:

1. Uncertainty: in insuring any risk, an insurer must be satisfied the occurrence of the insured event is suitably uncertain. When the SAA strike was announced on 15 November 2019 and SAA announced that it is in serious financial trouble (to the extent that it could not pay November salaries to staff), the likelihood of financial default became substantially less uncertain.
2. Quantum of risk or maximum probable loss: in insuring any risk, an insurer must ensure that it can quantify the likely loss it will face if an insured event occurs and it must be comfortable that it is willing to bear that potential loss. Hollard was uncomfortable with the potential loss that might be incurred if SAA incurs a financial default. To give readers an idea of the amounts involved, SAA put its own losses at R52-million for every day of suspended operations.
3. Anti-selection: once other insurers withdraw a benefit, any insurer still offering that benefit can suffer multiplied losses, as more people seek cover for the inevitable from the remaining provider.