The coronavirus crisis has stretched the insurance industry and forced it to rethink many of its practices across various lines of business. The economic and movement restrictions imposed by governments to slow the spread of the virus have brought business interruption (BI) to the forefront of the insurance discussion.
Roughly two years since the virus’ transmission exploded globally, it seems that the pandemic is fading into the rear-view mirror. The latest Allianz Risk Barometer report showed that cyber risk has overtaken the pandemic as the most feared cause of business interruption. However, the pandemic remains a significant cause of concern and its effects could be long-lasting, according to Mark Mitchell (pictured above), Asia-Pacific regional managing director, Allianz Global Corporate & Specialty.
“Business interruption risk continues to be a key concern for businesses around the world, especially as triggers causing disruption continues to evolve and expand,” Mitchell told Insurance Business. “The growing concern [regarding cyber] reflects the impact of more prevalent ransomware attacks, but is also the result of digitalisation of business models and supply chains, and the shift to remote working, which have accelerated during the pandemic.”
As medical advances against COVID-19 continue, its impact on BI is predicted to decrease, but its effects continue to ripple.
“As governments and companies feel more adequately prepared for future outbreaks, pandemic as a trigger for BI drops to third position, just behind natural catastrophes and ahead of shipping and transportation disruption, which both climb the rankings in this category year after year,” Mitchell said. “Shipping and transportation disruption is also a consequence of the pandemic, as COVID-19 port closures, labour shortages and a sudden surge in demand for container shipping has caused major delays and increased costs for businesses.”
Mitchell said that the pandemic made the insurance industry realise that that not all BI risks are easy to insure and secure meaningful capacities for. This is especially evident for large business interruption and contingent business interruption risks, where capacity is quite limited and there is a lack of transparency.
“The better the transparency and data, the more meaningful capacity we, as insurers, are able to offer,” he said. “We still see clients where their mapping of supply chain risk is not as detailed as it should be. It is critical to understand the value chain and identify the most important exposures in order to mitigate the risks and create solutions to transfer or reduce the risk.”
The past two years have featured widespread supply chain disruptions, which are clear manifestations of the pandemic’s effects. Restrictions and business closures, as well as more stringent health protocols, have huge repercussions throughout the supply chain.
“Just this week, Hong Kong tightened its measures amidst a new outbreak leading to residents scrambling for fresh produce, which the city mostly imports from China and were limited in supply,” Mitchell said. “Post-lockdown surges in demand have combined with disruption to production and logistics, as COVID-19 outbreaks in Asia closed factories and caused record levels of congestion at major container ship ports. Other knock-on effects included a spike in demand for energy, which led to power blackouts and further factory closures in Asia, as well as acute shortages of labour in the transport, hospitality and food production sectors.”
Other non-related incidents have also impacted the supply chain and exacerbated the problem. These include the Suez Canal blockage and the global chip shortage, the latter of which was worsened by a fire in a major chipmaking plant in Japan.
Aside from the pandemic, there are other risks that could have a huge impact on the BI market, Mitchell said. These include natural catastrophes and fire.
“Businesses and insurers now have to be more resilient against extreme weather events,” Mitchell said. “Previously dubbed ‘once-in-a-century’ events may well occur more frequently in future. At the same time, with secondary perils accounting for a growing number of losses, current modelling capabilities and risk mitigation strategies will need to be continually reassessed and improved. Recent events have shown that so-called ‘safe’ regions or times of the year can no longer be taken for granted. Therefore, both buildings and business continuity planning need to become more robust in response. Insurers help and support their clients in both areas, whether it be advising on flood mitigation, building reinforcement measures or aiding business continuity planning for a wide range of crisis events. Such planning can make a real difference when disaster strikes, ensuring companies can return to operations as quickly as possible.”
