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Ensuring Business Continuity: The Role of Insurance Amid Catastrophic Events

This presentation explores the impact of catastrophic events on business continuity, focusing on production capacity, revenue losses, and insurance implications. It highlights the importance of business interruption (BI) insurance in safeguarding against financial setbacks, specifically during the indemnity period following a damaging event. Examples from various sectors illustrate the adverse effects of such events, and the significance of risk management and prevention measures. Ultimately, it raises questions about the limitations of BI policies and the challenges of external factors affecting business viability.

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Ensuring Business Continuity: The Role of Insurance Amid Catastrophic Events

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Presentation Transcript

  1. Delivering the promises

  2. Title : Punishment for good behavior ? • For : 28th Annual Caribbean Insurance Conference • By : Jan Willemse • Date : 2 juni 2008

  3. Production capacity: • Assets - Buildings - Machinery • Staff • Utilities Supplies: • Raw materials • Goods Markets: • Client needs • Accessibility Revenue • Expenses • Profit The chain of business continuity

  4. Impact of catastrophic events • Direct damages • Private property • Public facilities • Indirect damages • Loss of potential production/services • Loss of income • Additional costs

  5. Effect of CAT events on economic performance • Business sectors: • Agriculture: fall in production output • Manufacturing: decrease in production activities • Service sector: decline in activities

  6. χ Production capacity: • Assets - Buildings - Machinery • Staff • Utilities Supplies: • Raw materials • Goods Markets: • Client needs • Accessibility Revenue • Expenses • Profit Effect on chain of business continuity χ

  7. The Business Interruption Insurance • Gross Profit related to the amount by which • the turnover during the indemnity period will, in consequence of the damage, fall short of the standard turnover.

  8. Definitions • consequence of the damage: interruption only on account of damage at the insured property by an insured peril • indemnity period: the period beginning with the occurrence of the damage and ending not later than the maximum indemnity period thereafter, during which the results of the business are affected in consequence of the damage • Standard turnover: the turnover during the period corresponding with the indemnity period in the twelve months immediately before the date of the damage

  9. 120 $ 100 80 60 40 Standard Turnover Act. Turnover major material damage Act.Turnover minor material damage 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time Sample scenario I repair repair event

  10. 120 $ 100 80 60 40 Standard Turnover Act. Turnover major material damage Act.Turnover minor material damage 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time Sample scenario I repair repair event

  11. 120 $ 100 80 60 40 Standard Turnover Act. Turnover major material damage Act.Turnover minor material damage 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time Sample scenario I repair repair event

  12. 120 $ 100 80 60 40 Standard Turnover Act. Turnover major material damage Act.Turnover minor material damage 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time Sample scenario I repair repair event

  13. 120 $ 100 80 60 40 Standard Turnover Act. Turnover major material damage Act.Turnover minor material damage 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time Sample scenario I repair repair event

  14. Adjustments • Trends and variations • Special circumstances • Predictability? • Extent of uncertainties?

  15. Sample scenario II repair repair event

  16. Sample scenario II repair repair event

  17. Sample scenario II repair repair event

  18. Summary • BI cover considered as an insurance to safeguard the continuity of the business involved • External factors (outside insured object) are causing extra loss of income and therefore a greater risk to business continuity • BI policies require material damage to insured objects

  19. Conclusions • Excellent risk management and prevention measures can adversely affect the continuity of the insured business (punishment for good behavior?) • Policies do not cover Business Interruption losses as a result of external factors (e.g. "loss of market”) • BI insurance not a full (asset protection) solution to protect and safeguard continuity of the business

  20. Thank you for your attention!

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