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Insurance managers consistently identify business interruption (BI) as a key concern, and business interruption and supply chain risk as the number one risk facing businesses today. (Allianz 2016 Risk barometer). It is therefore unsurprising that each of the top ten risks in terms of likelihood, as identified by the World Economic Forum’s Global Risks Report 2016, from interstate conflict and involuntary mass migration to data fraud, all pose the threat of business interruption.
Airmic launched a business interruption focus group in 2015, bringing together insurance managers, insurers, brokers, lawyers and loss adjusters to discuss two key challenges faced when purchasing appropriate cover for their BI risk. Firstly, the growing importance of intangible assets to an organisation and the impact of non-damage events means that traditional property damage business interruption can be unfit for purpose. Secondly, the group highlighted a number of fundamental hurdles in purchasing traditional Property Damage Business Interruption (PD/BI) that can leave the organisation lacking
in confidence that its current policy will respond as hoped in the event of a claim. These difficulties can lead to the claims challenges and settlement delays experienced by many Airmic members.
"We are changing the conversation in relation to business interruption. If you mention BI to anyone in the insurance industry, they automatically assume you mean property damage (PD)
BI insurance. We take a broader view of BI risk – anything that interrupts business - whether that is a natural catastrophe event or a cyber-attack, within the boundaries of your own organisation or somewhere in the vast value chain. However, as a property damage event remains the worst loss that many businesses face, and it is the policy that most people buy, we are beginning with the improvement of PD/BI policies, focussing on five key issues that have been around for quite some time.”
Caroline Woolley, Marsh’s Business Interruption Centre of Excellence Global Leader
Airmic and Marsh consider these fundamental hurdles in this paper, addressing the key reasons why purchasing BI cover can be so complex and suggesting practical steps that insurance managers can take to understand their BI risk and increase their confidence in the effectiveness of the cover purchased.
The guidance will look at four areas of difficulty highlighted by Airmic members, and develops the material covered within the Marsh report, ‘Business Interruption Efficacy: Five Key Issues’:
• Ensuring efficient claims settlement.
• Selecting the maximum indemnity period.
• Purchasing relevant supply chain cover.
• Determining the insured values and avoiding underinsurance.
The paper also reflects on how each of the above issues will be affected by the Insurance Act 2015, which will come into force in August 2016.
The challenges and solutions suggested in this paper are the focus of the ongoing work of the Airmic business interruption focus group.
The group will also continue to look at the broader issue of purchasing business interruption that is relevant to the emerging risks facing businesses today.