IIG News

IIG Insights: Demystifying Business Interruption

Darryl Grater, IIG President, welcomed all in attendance. He reminded everyone that this is a CPD accredited session wholly sponsored by Swiss Re. Darryl thanked Swiss Re for their generous sponsorship and welcomed their two speakers currently based in Zurich, David Mäder and Nicolas Georgy. Thereafter the introduction was handed over to Carli Jacobs based at Swiss Re, South Africa.

Carli introduced the topic of demystifying business interruption as part of the 3rd and final webinar in Swiss Re’s insights trilogy for 2020. She commented further that these virtual insights sessions have provided extremely valuable, feedback which has also been very positive and thanked the IIG for their webinar activities and emphasised that Swiss Re is a believer in continued learning. Carli advised all viewers that the Q&A will be handled via the “Slido” app.

The speakers were introduced, the first being, Nicolas Georgy, Head of Property Treaty and David Mäder, Head of Sales & Property Solutions at Swiss Re. Their focus and discussion was to unpack the operational aspect of sustainability around non damage business interruption.

Nicolas began his presentation by defining what Non-physical damage business interruption (NDBI) is:

NDBI insurance covers business interruption (BI) resulting from events:

  • That do not produce physical damage to insured property
  • That lead to material disruption to earnings/solvency of the insured
  • Which usually are of low frequency and high severity nature

Other characteristics:

  • Limits are usually lower than loss potential
  • Recoveries can be on an indemnity or on parametric basis
  • Coverage is usually written on a multi-year basis

Possible triggers for NDBI:

  • Nat Cat events
  • Weather events
  • Flight traffic
  • Economic crisis
  • Significant terror events
  • Cyber attacks
  • Pandemics
  • Supply chain
  • Others – denial of access: unique road access, strikes, civil commotion

Some challenges and limitations of NDBI covers can be tight and clear definition of the triggering events for named perils policies. Key considerations for All risks policies is appetite or exclusion for a high accumulation scenario (Nat Cat, Cyber, Pandemic). The most important is a lack of transparency into the underlying risk e.g. having clear knowledge of the entire supply chain.

David followed the presentation by sharing concepts and ideas, ‘pre’, ‘during’ and ‘after’ events.

NDBI is an extremely vast subject area and it is apt that the trilogy journey concludes on this topic.

Pre-event:

  • See the gap
  • Mind the gap
  • Insure the gap – the gap being Nat Cat events not insured in Africa

Protection gap of South Africa – the protection gap in the African continent for Nat Cat is estimated to be US$1 billion of economic losses per year. Exposure to storms, floods, droughts, fires and heat waves account for the majority of these losses. In the last 30yrs, it was monitored that approximately 50 major natural events occurred in the country and 24 of these were related to floods and storms. Natural events affect the population worldwide and the sensibility of individuals towards these events have increased and highlighted the limits of sovereign intention. Currently the entire world is struggling with Covid-19 and its subsequent impact on individuals and businesses.  David highlighted that the risk of floods in the African region is quite significant. Insuring risks with traditional policies are not always possible. Parametric cover within the traditional insurance landscape can be quite complimentary. We can combine existing indemnity covers with parametric covers that can cover any additional cost that could arise from defined events.

During the event:

Know / Mitigate / Recover

Know: immediate disaster response with real-time data feeds:

  • Transactional data
  • Traffic info
  • Evacuation alerts
  • Satellite imagery

Best sources to mitigate: Disaster Management

Key features:

  • Chatbots that flex to the level of engagement of an individual’s need
  • Sensors, satellite imagery, predictive storm and impact modelling
  • Geolocating interactions to confirm identity and location

Nicolas shared an example of what could occur without appropriate cover:

In February 2011, a major earthquake erupted in Japan. Many companies that built cars had issues with their suppliers unable to reach them, but, were able to quickly find alternative producers in Thailand and were able to continue operating their business. Then, Thailand was flooded so alternative options also quickly became ineffective. Due to unpredictable complexities that can arise, sometimes it’s best to have the correct cover in place.

Post-event phase: Identify / Quantify / Learn

Example:

A rapid damage assessment for flood & the methodology to calculate the portfolio loss estimate, flood footprint, client-specific information and model the damage. Ensuring that pay-outs reach companies who need it most: initial loss estimate, pay-out recommendation, loss assessment and thereafter the 2nd pay-out recommendation if needed.

Product: bad weather protection based on daily rainfall cover; drop in income due to short-term cancellations caused by long lasting rainfall.

Parametric tropical cyclone insurance for a client in Africa – cover includes: emergency cash for clients in case of a tropical cyclone.

The speakers ended their presentation and the floor was opened for the Q&A.

Carli thanked the speakers and advised that those questions not addressed in this session will be handled via email. Most questions seemed to be around pandemics which Nicolas advised is clearly a risk, but reinsurance doesn’t have sufficient capital to cover. Governments should take the responsibility in managing these losses with Insurers assisting in administrating compensation for the losses.

Finally, the session was concluded by Priyen Mehta, Property Underwriter at Swiss Re who in his vote of thanks emphasised that as part of this sustainability trilogy, Swiss Re sees the opportunity to rebuild a stronger world post-COVID. This also forms part of the UN’s sustainable goals for the future.

IIG had a record attendance of 600 people on the webinar and everyone was thanked for their active participation.

By: Asiya Swaleh

 

 

 

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