Space weather risks are difficult to quantify due to the lack of understanding and clarity about the likely duration and consequences of extreme events. However, it is clear the interconnected global economy that exists today is vulnerable to the risks posed by space weather. Indeed, extreme solar weather events have the potential to create systemic risk by triggering cascading failures across industries and regions.
Posts Tagged ‘CBI’
Although there has been a significant increase in both economic and insured losses from natural catastrophes in recent decades, it is important to put these numbers in context. With the exception of coastal flood, inland flood and drought, the wholesale attribution of rising financial losses to an increase in hazard frequency can be misleading. Statements concerning the influence of global warming on loss trends would be better served if normalized by factors such as inflation, (per capita) gross domestic product, total insured value, population density and annualized property value. Indeed, the IPCC agrees that ignoring these factors leaves an upward trend in losses for purely economic reasons, notwithstanding any behavior in the peril. As an example, the recent “trend” in hurricane losses for the coastal United States loses clarity when normalized by inflation and population density. (1)
Technological advances have resulted in business being conducted all over the world in an instantaneous manner, meaning supply chain failures can significantly impact companies’ revenue, credibility and reputation. Companies are therefore now far more exposed to external risks than ever before. This has raised (re)insurers’ concerns over the ability of the market to understand the risks that are being underwritten and the viability of offering business interruption/contingent business interruption (BI/CBI) cover. Indeed, some (re)insurers have taken the view that risk management strategies at the company level need to be improved before coverage can be offered.
Changing business environments and the interconnected global economy have created new risks for organizations, which in turn have prompted the need for greater awareness and protection against supply chain disruption. However, while greater awareness is important, it does not always translate into a true understanding of the risk. For example, a recent study conducted by Oliver Wyman in conjunction with the National Association of Corporate Directors (1) showed that 51 percent of those surveyed indicated that they were not provided with adequate information to deliver IT risk oversight.
The Business Continuity Institute’s 2012 Supply Chain Resilience Survey estimates that outsource service provider failure represents one of the most significant causes of supply chain disruption, only lagging behind adverse weather and technology (see Figure F-1). The particular danger represented by the supplier or service provider, especially if it involves an aspect of critical infrastructure, is that the failure is likely to cut across multiple industries and geographies. For example, the disruption caused by a component part of technology used by a power generator does not just shut the utility down - all commercial and residential operations grind to halt.
Cyber risks are not isolated and are usually connected to other risks. Many companies that are exposed to cyber risks are, for example, also exposed in turn to risks to their supply chain. Due to technological innovation and advances, many parts of a company’s or industry’s supply chain have become interconnected and automated. Technology is indeed a critical enabler of a supply chain’s operations. Therefore a cyber attack has the potential to put an entire company’s supply chain at risk. Cyber security and supply chain risk management must therefore be considered in conjunction with one another.
Guy Carpenter Extends Coverage of Industrial Park Database to Include Vietnam, Malaysia and South Korea
In 2011, Thailand experienced its worst flooding in years with insured losses estimated at around USD15 billion,(1) of which the Thai General Insurance Association attributed more than 90 percent arising from commercial risks located within industrial parks. As industrial parks are common in several countries in the region, Guy Carpenter developed a database of digitized boundaries of these parks to support its clients’ ability to analyze the potential for catastrophic losses arising from exposures located within park boundaries.
The (re)insurance sector is today operating in a rapidly changing and uncertain risk landscape. Against this backdrop, it is important that (re)insurers attempt to identify and understand emerging risks to plan for the long term and challenge assumptions about the future risk landscape environment.
Guy Carpenter published a new report highlighting emerging risks facing the (re)insurance sector, including cyber risk, climate change and space risk. The report seeks to identify pressing emerging risks confronting the sector, as well as analyze their implications on businesses and (re)insurers.
Here we highlight recent GC Capital Ideas stories that have focused on casualty lines of business.
Contingent Business Interruption: Life Support for Industry: Traditional insurance products are insufficient to address these increasingly complex challenges. The standard business interruption policy only indemnifies an insured for a reduction in revenue following damage at its own premises. Contingent business interruption is a generic term for extensions to the standard cover that provide for reduction in revenue as a result of damage at locations other than the insured’s own premises, whether it be suppliers or customers. In some cases insurers are providing cover on a “non-damage” basis, which protects against insolvency or political risk among an array of contingencies that might disturb the supply chain.
Criminal Liability of Companies Under Spanish Law: What is the Real Impact on Directors & Officers Coverage? The financial crisis has triggered a number of criminal investigations against companies and their directors. In light of these developments, this section provides an overview of the recently introduced Spanish regulation concerning criminal liability of companies and the real impact this reform will have on directors and officers policies.
Swiss Supreme Court: Scope of Ban on Retroactive Insurance: The current Swiss Insurance Contract Act (Versicherungsvertragsgesetz, VVG) prohibits retroactive insurance. Therefore, an insurance contract is usually void if the risk no longer exists or the feared event has already occurred before the contract is concluded (Article 9 VVG).