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Delivering the promises
Title : Punishment for good behavior ?
For : 28th Annual Caribbean Insurance Conference
By : Jan Willemse
Date : 2 juni 2008
The chain of business continuity
Production capacity:
• Assets
- Buildings- Machinery
• Staff• UtilitiesSupplies:
• Raw materials• Goods
Revenue• Expenses• Profit
Markets:• Client needs• Accessibility
Impact of catastrophic events
Direct damages Private property Public facilities
Indirect damages Loss of potential production/services Loss of income Additional costs
Effect of CAT events on economic performance
Business sectors: Agriculture: fall in production output
Manufacturing: decrease in production activities
Service sector: decline in activities
Effect on chain of business continuity
Production capacity:
• Assets
- Buildings- Machinery
• Staff• UtilitiesSupplies:
• Raw materials• Goods
Revenue• Expenses• Profit
Markets:• Client needs• Accessibility
χχ
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.
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
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard Turnover
Act. Turnover major material damage
Act.Turnover minor material damage
repairrepair
event
Sample scenario I
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard Turnover
Act. Turnover major material damage
Act.Turnover minor material damage
repairrepair
event
Sample scenario I
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard Turnover
Act. Turnover major material damage
Act.Turnover minor material damage
repairrepair
event
Sample scenario I
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard Turnover
Act. Turnover major material damage
Act.Turnover minor material damage
repairrepair
event
Sample scenario I
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard Turnover
Act. Turnover major material damage
Act.Turnover minor material damage
repairrepair
event
Sample scenario I
Adjustments
Trends and variations
Special circumstances
Predictability?
Extent of uncertainties?
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard TurnoverAct. Turnover major material damageAct.Turnover minor material damageadjusted standard TO
repairrepair
event
Sample scenario II
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard TurnoverAct. Turnover major material damageAct.Turnover minor material damageadjusted standard TO
repairrepair
event
Sample scenario II
0
20
40
60
80
100
120
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Time
$
Standard TurnoverAct. Turnover major material damageAct.Turnover minor material damageadjusted standard TO
repairrepair
event
Sample scenario II
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
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
Thank you for your attention!
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