French strikes raise questions for risk and insurance managers

During the past couple of months, workers from several sectors of the French economy have gone on strike to protest against attempts by president François Hollande’s government to liberalise the country’s labour markets. The strikes have hit some companies hard, including those not directly affected by action due to issues within the supply chain. SNCF, the country’s state-owned railway manager, had its services interrupted during several days of strikes, which caused estimated losses of €310m by mid-June. Air France suffered interruption to services, as did 16 out of the country’s 19 nuclear energy plants. Oil refineries and other sectors were also affected.hideThere appears little hope of strikes being curtailed. The majority of the French oppose the Loi Travail bill, which aims to reform the country’s labour market. A survey by research firm Harris Interactive for LCP TV network found that two out of three citizens are against the bill. According to experts, disruption at individual firms and across the supply chain can take many different forms. As the SNCF strike illustrates, one is the inability of staff to get to work. This risk should be combatted with business continuity plans, experts advise. “Strike risks must be dealt with under the broader [spectrum] of risks where resources become unavailable for the company,” said Benoit Vraie, an associated professor of risk management at the University of Paris I Panthéon-Sorbonne. “Business continuity plans must devise ways to deal with the risk that human resources become unavailable, be it for a transportation strike, as a result of floods, or [because] of pandemics.” Strikes cause huge supply chain risk. While the insurance market offers cover for interruption caused by physical damage, it is less ready to step up when the cause is non-physical. “There are many insurance solutions in the market for strike risks, when physical damage is involved,” said Xavier Mallez, head of political risk, structured credit, surety for Marsh France. “It is trickier when there is no physical damage.” Physical damage caused by strikes is covered in property insurance contracts via so-called strikes, riots and civil commotion (SRCC) clauses. “SRCC clauses cover property damage suffered by the insured and also [its] consequences, in terms of business interruption,” said Jean-Baptiste Regnier, property underwriting manager at Allianz Global Corporate & Specialty (AGCS) France. “But they require a physical loss to be triggered.” Problems for insurance buyers occur when strikes disrupt a business without causing physical damage, or as a result of events taking place far away from the insured’s affected business unit or operation. According to Mr Mallez, there are two possible solutions: contingent strike insurance and non-damage business interruption (BI) cover. “In the Lloyd’s market, there are some contingent strike insurance solutions,” he said. “They can cover situations where strikes lead to the closure of facilities, or losses caused by the interruption of transportation. They do not require physical damage but [do] cover losses of revenues.” “These policies have been purchased by companies in sectors such as hotel and leisure, transportation and retailers, such as supermarkets,” he added. The other option is non-damage BI insurance. This line of business has long caused problems for buyers and insurers alike. “Non-damage BI solutions are most developed for manufacturing companies, which need to find a way to cover the additional costs incurred if they have to put in place alternative sourcing of goods or alternative means of transporting them,” Mr Mallez remarked. “But they are developing for other sectors as well.” These policies can cover interrupted transport links caused by strikes. “In order to activate non-damage BI coverages, the non-damage event must occur within the insured supply chain or at the insured locations,” explained Mr Regnier. “And the insured’s supply chain is defined as the insured location, plus the main suppliers and main customers.” However, insurers such as AGCS will only sell this coverage to companies that have plans in place to reduce business interruption risks in their supply chains. “We ask our clients to have business continuity plans in place,” Mr Regnier said. “For example, we recommend they develop alternative roads for the delivery of production goods, so that they will mitigate the risk of strikes.” He noted that many companies have benefited from discussion with insurers on such issues but conceded that buyers often complain that non-damage BI solutions do not cover their full needs. “Risk managers have welcomed the introduction of non-damage BI policies, not least because the discussions with insurers are helping them to better assess their supply chain risks. Their perception is positive but they are asking for more triggers. For example, in the field of cyber risks,” said Mr Regnier. “BI is the future of insurance and we need to continue to innovate there.” Mr Mallez noted that capacity is a problem. Large buyers are not finding the level of protection they deem necessary, he pointed out. “A growing number of companies are looking at non-damage BI insurance. Not only related to strikes, but also linked to other risks such as terrorism,” he said. “There is not much capacity in the market for this kind of risk.” According to Mr Regnier, AGCS offers maximum capacity of between $50m and $100m. The coverage targets large industrial groups. The experts explained that there is little cover on offer from the insurance market to protect companies if their own employees go on strike. “We exclude from our policies strikes by the insured’s own employees, as we considered that managers of a company have an influence on the decision by employees to go on strike,” Mr Regnier said. Therefore, the only option is a risk-managed response. Risk managers are advised to have mechanisms within their business continuity plans to ensure minimum levels of production or service during industrial action. “Business continuity plans have to be presented to social partners – and measures to mitigate the risk of a lack of personnel have to be discussed with them,” Mr Vraie said.

French strikes raise questions for risk and insurance managers

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