The many faces of business interruption

The many faces of business interruption | Insurance Business

The many faces of business interruption

The world is becoming more fragile with every passing day, with political and economic upheaval, natural catastrophe risks and trade tensions resulting in the very real risk of business interruption for the vast majority of organisations worldwide.

Allianz Global Corporate & Speciality (AGCS) has run its Risk Barometer survey annually for eight years, and business interruption has been named the top global risk for the past seven. It is followed closely by cyber risks, natural catastrophes and the world of changing legislation and regulation, with sanctions and trade tensions remaining at the forefront of businesses’ minds across Asia-Pacific.

Insurance Business spoke to Sinead Browne, board member for Asia-Pacific and South America, and CEO for London at AGCS, to discuss business interruption and the many forms it can take.

“Business interruption has consistently been the number one risk for seven years, and that reflects the globalised nature of business today and the growing interconnectivity that we have across industries,” Browne said. “It also reflects the growing role of low-cost environments when it comes to manufacturing and supply chains.”

“Natural catastrophes are certainly top of our mind when we look at the insurance losses that the industry has experienced,” she continued.

“2017 and 2018 have served to remind us just how much that impacts society economically, and, in insurance terms, 2017 was an incredibly expensive nat cat year – about US$135 billion was paid in insured losses. When it comes to managing balance sheets, actively managing that nat cat exposure is incredibly important.”

Browne says one of the biggest issues clients face is that business interruption can be either physical or non-physical. Claims may arise out of physical damage such as floods, fires or earthquakes, but equally, they can arise when no physical damage has been sustained to your home or business property at all.

One recent example was seen in the West Coast flooding in New Zealand, where floodwaters destroyed the Waiho Bridge on State Highway 6, cutting off the main transport link to the rest of southern Westland – something which hit rural and farmer businesses hard, despite them having suffered little damage to their own properties.

“Businesses therefore need to manage their risks and internal processes very carefully,” Browne said. “The world is becoming more fragile, and they’re going to need to think hard about the insurance cover they have to mitigate those business interruption risks.”

“If we look at the impact of legislation and regulation, that’s also becoming an ever increasing topic,” she continued.

“If you look at how the role of sanctions impacts business and how it can interrupt supply chains and customer bases, the penalties linked to breaking sanctions are pretty significant. The China-US trade relationship is under constant scrutiny, and businesses are naturally questioning if there are going to be increased tariffs and if they’re going to become less competitive.

“The responsibility of the insurance industry is now to step up and help mitigate those losses and provide insurance coverage as much as possible.”