Funk Smart BI Check provides clarity
In a world of connected supply chains, business interruptions can result in significant financial damages. The management should therefore be aware of the worst case and obtain protection with a business interruption insurance based on needs. The market for the corresponding insurances has hardened, creating additional challenges.
The poor claim rates of recent years have placed property insurers in a tight spot. As a result, general hardening in the property insurance market with a slight increase in premiums has been observed. But particularly after a claim and/or in certain industries such as chemicals and meat products, there have also been much higher increases in premiums. In some cases, two to three times the existing premiums have been demanded, while in others, insurers have even wanted to terminate the insurance cover entirely. Dr Alexander Skorna, Head of Business Development at Funk, adds: ‘Much lower limits for retroactive and reciprocal effects as well as capacities per individual risk through insurers have also proven to be problematic for policy holders. As a result, insurance cover is not only more expensive in individual cases, but also offers less scope of cover.’
In its fire damage report published at the end of 2018, insurer Allianz/AGCS concludes that the tense market situation is also accompanied by a trend towards a larger loss of earnings. Analysis of claim histories spanning five years reveals that the costs associated with business interruptions play a key role in the size of the total claim. According to AGCS, the business interruption damage associated with property insurance is, on average, more than EUR 3 million. That’s around 39 per cent more than the average direct property damage, which is EUR 2.2 million. Damages resulting from fire or explosion accounted for around a quarter of all damages and are therefore the largest source of damage. Nearly 90 per cent of all claims in industrial insurance are the result of human error or technical failure.
- Globally integrated supply chains with limited buffer stock and redundancies
- Streamlining know-how and individual working steps to a few key works without im-provements to fire protection or crisis management
- Increasing dependence on IT infrastructures, which are constantly exposed to many different forms of attack
This is also reflected in the current 2019 Allianz Risk Barometer: as in previous years, the risk of business interruption in 2019 occupies first place in the ranking, followed closely by cyberattacks and natural catastrophes.
Funk Smart BI Check for greater transparency in supply chain risks
While companies tend to have a handle on the values of their buildings, machinery, systems and supplies, localising gross profits on a production site or complex level is often difficult. Because value chains are now connected, determining the internal and external interde-pendencies is also important. ‘This is the only way to efficiently define the scope of insur-ance,’ says Fabian Konopka, Consultant for BI and Business Continuity Management at Funk Risk Consulting. Funk Risk Consulting works with the company to analyse its value-adding processes. Based on scenarios, a qualified risk dialogue reveals the maximum losses that are financially likely as a result of the failure of critical suppliers, production locations and bottleneck systems as well as critical customers. ‘We take a look at the manufacturing sys-tems on-site, carry out risk dialogues and, on this basis, analyse interdependencies and risks,’ explains Fabian Konopka.
This provides companies with clarity about the worst case. Dr Skorna adds: ‘A decisive sec-ondary effect is also the supportive marketability of the property/business interruption risk. In a hard property insurance market, transparency in actual risk represents major added value when it comes to finding a suitable risk carrier and attractive premium level. The sums in-sured can also be reduced on occasion, as companies are sometimes designed specifically to be more redundant due to their expansion. We’ve also increasingly observed the trend of insurers only expanding the scope of cover – for instance, higher limits/sums insured – after completing analysis of business interruption.’