Willis offer innovative non-damage BI cover to ease buyer concern

Discussion about the need for this type of cover arose when volcanic ash from Iceland grounded aircraft last year. Several companies suffered losses due to the interruption of business when important components needed for production were not delivered on time. The earthquake and the tsunami in Japan this year led to similar problems. In particular, the motor industry experienced severe losses because Japanese suppliers were unable to manufacture or deliver parts. Standard business interruption policies inadequately cover such losses and only really offer protection for damage to the policyholder’s property. Companies can buy special contingent cover that protects them against business interruption due to a property loss at their supplier’s site. But in several cases Japanese car suppliers were not able to deliver parts because of power cuts and not because their plants were directly affected by the quake or tsunami. As such insurers did not pay out under the contingent cover.hideWillis is promising to fill this gap. “Our policy covers loss of revenue when parts are not delivered at all or with a delay due to political risks, such as war, disrupted transportation routes or natural catastrophes,” said Willis’ expert for automotive business, Nadine Schneider. Since the policy is designed as an add-on to complement standard business interruption contracts it does not include losses due to property damage but rather to other situations such as flooding to roads. The new policy is targeted in particular at medium-sized German car component makers that are internationally active and have a lot of their suppliers or subsidiaries in regions that are unstable. The policy covers losses when the company does not get parts or cannot deliver its own parts to its clients. “Unlike our competitors’ offers, our policies are easier to obtain and the deductibles are lower,” she said. Companies that want to buy such a policy from Zurich have to allow the insurer to do a risk assessment of its supply chain first and have to pay for this upfront, although the costs are reimbursed when the contract is signed. At Willis, companies only have to fill out a form with eight questions, claims Ms Schneider. “A risk assessment only takes place when the company wants more risks included or a higher insured sum than the basic solution provides.” The standard insured sum, which costs a premium of about €40,000, is €1m. The highest insured sum a company can opt for is €35m—which is considerably less than the €100m Zurich offers. Willis refused to give the name of the risk carrier for the policy. “It is a foreign insurer with a good rating,” said Ms Schneider. She expects that demand will be high, though the broker has not sold any contracts yet. “We are still in the launch period. We have contacted several hundred companies so far and two-thirds of them have shown great interest,” she said. Insurer Zurich also seems to be satisfied with the demand for its policy. “We have sold a single-digit number of contracts internationally so far,” said spokesman Bernd Engelien. Zurich has done, or is doing, a risk assessment at hundreds of companies. Philipp Andreae, Managing Director of Germany’s risk manager association Deutscher Versicherungs-Schutzverband, welcomed the new offer. “We are happy about each step the insurance industry takes to bring innovation into the market,” he said. “It is a good sign when there is movement in this field and when a competitive situation builds up.” Others are not so optimistic. “We often observed that concepts developed by brokers promise more than they can deliver,” said a risk manager from the automobile industry. The next insurer to come up with a similar policy may be Allianz Global Corporate & Specialty (AGCS). The company has been working on a concept for several months now, but has not started selling it on the market yet. AGCS Chief Executive Axel Theis told CRE in March that the demand was not sufficient. “Now there is reasonable demand, but we are still at an early stage,” said AGCS spokesman Hugo Kidston. Since business interruption without preceding property loss is a complex topic, the insurer wants to do some research first and talk to clients about what they really need. “We don’t want to offer a standard product. It needs to be custom-built,” said Mr Kidston. Joachim ten Eicken, board member of insurer HDI-Gerling Industrie, does not believe these new policies will be fruitful, because the needs of the client are likely to be so specific that it is difficult to provide cover that caters for all. He believes that individual solutions work best. But these covers are not that numerous because the topic is complicated, he added.

Willis offer innovative non-damage BI cover to ease buyer concern

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