Allianz: Why is business interruption the top risk in Canada?

Allianz: Why is business interruption the top risk in Canada? | Insurance Business Canada

Allianz: Why is business interruption the top risk in Canada?
The Allianz Risk Barometer for 2018 threw a surprising stat into the mix.

The report, which looks at the most important corporate perils for the year ahead and beyond, based on the insight of more than 1,900 risk management experts from 80 countries, found business interruption to be the most important risk globally for the sixth year running.

That’s not exactly surprising as companies are facing an increasing number of business interruption scenarios, ranging from traditional exposures, such as fire, natural disasters and supply chain disruption, to new triggers stemming from digitalization and interconnectedness that typically come without physical damage, but with high financial loss.

What did stump readers was the significant point difference around business interruption severity in Canada compared to the global average. While global concern rose five points in 2017 from 37% to 42%, Canada’s alarm shot up 18 points from 42% to 60%.  

Insurance Business caught up with Allianz Global Corporate & Specialty Americas’ chief agent for Canada, Ulrich Kadow, and head of claims in Canada, Bernard McNulty, to find out why business interruption is such a concern in Canada, especially in relation to the US where it was pipped to the post by cyber risk.

“There’s a general trend that as the world gets more connected, business interruption risk increases,” said Kadow. “Technology plays a significant role in that journey. As companies get more and more sophisticated with their internal technology capabilities, and use technology to make their supply chains more sophisticated and cost-efficient, there will be increased exposures as the whole supply chain becomes a bit more vulnerable to disruption. If one link in the supply chain gets disrupted, that could cause quite a significant insurance loss from a business interruption.”

Increased natural catastrophe activity is also upping business interruption concern in Canada, according to Kadow. Many Canadian corporations have significant operations in the US, which could have been impacted by the likes of Hurricanes Harvey, Irma and Maria, the California wildfires, and the Mexico earthquake.

“Lots of Canadian multi-national companies have operations in North American areas that are often affected by natural catastrophes. They think natural catastrophes that are hitting the US are directly impacting Canadian policyholders by interrupting their supply chain, their stores, or just their general operations,” explained McNulty.

“Another issue risk managers across North America are finding is that restoring operations post-loss (either from fire, water damage, windstorm etc) is becoming more and more challenging. We’re running into more environmentally-friendly building products that can be difficult to procure or repair post-loss, and, as production lines get ever-more technologically complex, it can take a lot of time to get machines back in operation and back to full production. Those types of challenges are making risk managers and insurance buyers far more aware of business interruption concerns.”

A third trend specific to Canada relates to construction risks. The Canadian government is keen to invest in infrastructure and construction. If key components affect the critical supply chain path and construction projects fall behind schedule, delayed to start up (DSU) risks come into play, which is a construction-specific business interruption exposure that can result in a loss.
Everything mentioned so far could also impact US risk managers, so why is business interruption less of a concern in the states than in Canada?
“I think US companies perhaps have more control of their own claims destiny,” commented McNulty. “Self-insured retention levels are often higher with US multi-national corporations. If we see a client with a C$5 million deductible in Canada, that’s a big deal. Whereas in the US, a US$20-30 million deductible is not uncommon. They can expedite things a little more quickly and they may be more in charge or their own claims.”

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