Raising the profile of education in the Lloyd s Market.

Transcription

1 Raising the profile of education in the Lloyd s Market

2 Contingent Business Interruption

3 What is the CBI Concept? If... Then...

4 What is the CBI Concept? If... Then...

5 What is the CBI Concept? In the event of each of these things: Then the policy covers: A.... B....

6 What is the CBI Concept? If: 1. Physical damage to property of a type insured under the insured s policy 2. To a supplier or customer s property, either specified or blanket 3. By a peril covered under the insured s policy 4. Which causes an interruption to the insured s business operation

7 What is the CBI Concept? Then the policy covers: A. The business interruption loss under the provisions of the insured s business interruption policy B. For the defined indemnity period

8

9 CBI Chain Rule

10 BI Schematic Overview Business Interruption Insured

11 CBI Schematic Overview Contingent Business Interruption

12 CBI Schematic Overview Contingent Business Interruption

13 Suppliers

14 Suppliers

15 CBI Coverage Multiple conditions/moving parts to CBI coverage = Difficult coverage questions

16 Four Frequent Coverage Issues Wording issues and adequacy Remoteness (who is a supplier / customer?) What is an interruption? Sublimit / Deductible application

17 Wording Issues Variety of CBI wordings Variations have significant impact

18 Wording Issues Definition of Supplier or Customer Applicable Policy Conditions

19 Wording Issues Suppliers, Customers and Conditions

20 Wording Issues Suppliers, Customers and Conditions

21 Wording Issues Supplier/Customer at the undernoted situations or to property as undernoted vs. any customer / supplier to whom the insured directly or indirectly provides / receives products

22 Wording Issues Conditions Subject to the conditions of the Policy after the application of all other terms, conditions and provisions of the Policy vs. Any loss sustained by the insured resulting from loss of or damage by a peril insured

23 Remoteness Chain of Supply/Demand Affected? Who qualifies as a supplier? Who qualifies as buyer / customer? Proximity of the relationship critical - Direct vs. Indirect - Tier 1 vs. Tier 2 Is Web Coverage Intended?

24 Chain of Supply/Demand Example Earthquake in Taiwan Electrical substation damaged Power plant cannot provide power to factories Factories cannot provide product to U.S. insured

25 Apply the Chain Rule In the event of: 1. Physical damage to property of a type insured under the insured s policy? physical damage to electrical substation 2. To property of a supplier or customer? power supplied to the Taiwanese factories is power supplier a supplier to the insured?

26 Apply the Chain Rule 3. By a peril covered under the insured s policy earthquake is covered 4. Which causes an interruption to the insured s business operation caused an interruption to the U.S. insured

27 Who is the Supplier? Taiwanese factories? Yes (if they have CBI cover) Factories purchase power directly from power company U.S. insured? Maybe depends on wording This example (Pentair) power supplier was too remote

28 Web Coverage? Contingent Business Interruption

29 Web Coverage? Contingent Business Interruption

30 Web Coverage Issues Customer Customer Customer Customer Supplier Insured CBI in CAT Customer Supplier Supplier Supplier Supplier Supplier

31 Web Coverage G. Coverage Extensions 1) Contingent Time Element Coverage. This policy, subject to all terms, conditions and provisions, also insures against loss resulting from damage or destruction by an insured peril, to property of the type insured, where: a. Such damage wholly or partially prevents any direct or indirect supplier of goods or services to the Insured from delivering such goods and/or services, or b. Such damage wholly or partially prevents any direct or indirect customer of the Insured from accepting the Insured s goods and/or services.

32 Web Coverage G. Coverage Extensions 1) Contingent Time Element Coverage. This policy, subject to all terms, conditions and provisions, also insures against loss resulting from damage or destruction by an insured peril, to property of the type insured, where: a. Such damage wholly or partially prevents any direct or indirect supplier of goods or services to the Insured from delivering such goods and/or services, or b. Such damage wholly or partially prevents any direct or indirect customer of the Insured from accepting the Insured s goods and/or services.

33 What is an Interruption? CBI generally covers interruption sustained by suppliers and/or customers Example: This policy covers against loss of earnings and necessary extra expense resulting from necessary interruption of [the insured's] business... caused by damage to or destruction of real or personal property, by the perils insured against under this policy, of any supplier of goods or services which results in the inability of such supplier to supply [goods or services to the insured].

34 Interruption? Example: Flooding decimates a food-products processing firm s access to corn supplies. The same flooding results in increased costs of transportation of food supply inputs and finished products to market. Despite difficulties, the food-processer never suffers any loss of production, and operates at full capacity. CBI claim is made based on increased costs of obtaining inputs and transporting goods.

35 Interruption? Can there be coverage for a CBI loss where no production is lost? Where the claimant continues to operate at capacity? What is the interruption being claimed?

36 Interruption? From the 8th Circuit Court of Appeals: The phrase "interruption of business," as used in... [the policy], does not require [the insured] to show that its corn processing plants stopped or slowed production. An interruption of business means some harm to the insured's business, including the payment of extra expense, that would not have been incurred but for damage that an insured peril has caused to the property of any supplier.

37 Interruption? From the 8th Circuit Court of Appeals: The phrase "interruption of business," as used in... [the policy], does not require [the insured] to show that its corn processing plants stopped or slowed production. An interruption of business means some harm to the insured's business, including the payment of extra expense, that would not have been incurred but for damage that an insured peril has caused to the property of any supplier.

38 What is a Supplier? Take Two! Coast Guard and Army Corps of Engineers are suppliers? This policy covers against loss of earnings... resulting from necessary interruption of business of the insured caused by damage to... Property... of any supplier of goods or services which results in the inability of such supplier to supply an insured location. Deemed suppliers of transportation services to ADM due to their construction and maintenance of Mississippi River transportation infrastructure (locks and dams).

39 Sublimits and Deductibles The following Sublimits apply: A. $500 million per occurrence as respects loss or damage resulting from the peril of Earthquake except: $10 million per occurrence as respects property situated in Japan. Even if the peril of Earthquake is the predominant cause of loss or damage, any ensuing physical loss or damage not otherwise excluded herein shall not be subject to any sublimits. B. $150 million per occurrence as respects Contingent Time Element for direct customers or suppliers, including $50 million for indirect customers or suppliers.

40 Sublimits and Deductibles The following Sublimits apply: A. $500 million per occurrence as respects loss or damage resulting from the peril of Earthquake except: $10 million per occurrence as respects property situated in Japan. Even if the peril of Earthquake is the predominant cause of loss or damage, any ensuing physical loss or damage not otherwise excluded herein shall not be subject to any sublimits. B. $150 million per occurrence as respects Contingent Time Element for direct customers or suppliers, including $50 million for indirect customers or suppliers.

41 Sublimits and Deductibles The following Sublimits apply: A. $500 million per occurrence as respects loss or damage resulting from the peril of Earthquake except: $10 million per occurrence as respects property situated in Japan. Even if the peril of Earthquake is the predominant cause of loss or damage, any ensuing physical loss or damage not otherwise excluded herein shall not be subject to any sublimits. B. $150 million per occurrence as respects Contingent Time Element for direct customers or suppliers, including $50 million for indirect customers or suppliers.

42 Sublimits and Deductibles The following Sublimits apply: A. $500 million per occurrence as respects loss or damage resulting from the peril of Earthquake except: $10 million per occurrence as respects property situated in Japan. Even if the peril of Earthquake is the predominant cause of loss or damage, any ensuing physical loss or damage not otherwise excluded herein shall not be subject to any sublimits. B. $150 million per occurrence as respects Contingent Time Element for direct customers or suppliers, including $50 million for indirect customers or suppliers.

43 Sublimits and Deductibles The following Sublimits apply: A. $500 million per occurrence as respects loss or damage resulting from the peril of Earthquake except: $10 million per occurrence as respects property situated in Japan. Even if the peril of Earthquake is the predominant cause of loss or damage, any ensuing physical loss or damage not otherwise excluded herein shall not be subject to any sublimits. B. $150 million per occurrence as respects Contingent Time Element for direct customers or suppliers, including $50 million for indirect customers or suppliers.

44 Sublimits and Deductibles The following Deductibles apply to all locations as respects Earthquake Shock at location(s) in High Hazard Earth Movements Zones, except Mexico: Five percent (5%) of the one hundred percent (100%) value of the property insured at location(s) involved for Property Damage; and Five percent (5%) of the full twelve (12) months Time Element that would have been earned in the 12 month period following the Occurrence at location(s) involved for Time Element. The combined deductible for Property Damage and Time Element shall be subject to a minimum of USD15,000,000 per occurrence.

45 Sublimits and Deductibles The following Deductibles apply to all locations as respects Earthquake Shock at location(s) in High Hazard Earth Movements Zones, except Mexico: Five percent (5%) of the one hundred percent (100%) value of the property insured at location(s) involved for Property Damage; and Five percent (5%) of the full twelve (12) months Time Element that would have been earned in the 12 month period following the Occurrence at location(s) involved for Time Element. The combined deductible for Property Damage and Time Element shall be subject to a minimum of USD15,000,000 per occurrence.

46 Sublimits and Deductibles As respects Locations in High Hazard Zones for Earth Movement, the following Deductible applies to Earth Movement per Occurrence: A. 5% of the Property Damage value of the property insured at the Locations where the physical damage occurred; and B. 5% of the full 12 months Time Element values that would have been earned in the 12 month period following the Occurrence had no loss occurred at: (1) the Locations where the physical damage occurred; and (2) all other Locations affected by such physical damage where such loss ensues, but only to the extent of the product line(s) affected by such physical loss.

47 Sublimits and Deductibles As respects Locations in High Hazard Zones for Earth Movement, the following Deductible applies to Earth Movement per Occurrence: A. 5% of the Property Damage value of the property insured at the Locations where the physical damage occurred; and B. 5% of the full 12 months Time Element values that would have been earned in the 12 month period following the Occurrence had no loss occurred at: (1) the Locations where the physical damage occurred; and (2) all other Locations affected by such physical damage where such loss ensues, but only to the extent of the product line(s) affected by such physical loss.

48 Sublimits and Deductibles WITH RESPECT TO WIDGET XYZ PRODUCTION - Applicable Average Daily Value is defined as the average daily sales value of WIDGET XYZ production at the affected location for the 24 months preceding the loss. Average sales value will be based on the average sales margin at the affected location for that same period.

49 Sublimits and Deductibles WITH RESPECT TO WIDGET XYZ PRODUCTION - Applicable Average Daily Value is defined as the average daily sales value of WIDGET XYZ production at the affected location for the 24 months preceding the loss. Average sales value will be based on the average sales margin at the affected location for that same period.

50 Sublimits and Deductibles WITH RESPECT TO WIDGET XYZ PRODUCTION - Applicable Average Daily Value is defined as the average daily sales value of WIDGET XYZ production at the affected locations for the 24 months preceding the loss. Average sales value will be based on the average sales margin at the affected locations for that same period.

51 Sublimits and Deductibles WITH RESPECT TO WIDGET XYZ PRODUCTION - Applicable Average Daily Value is defined as the average daily sales value of WIDGET XYZ production at the affected Location for the 24 months preceding the loss. Average sales value will be based on the average sales margin at the affected Location for that same period.

52 CBI Measurement Difficult to calculate business interruption loss caused by 3rd party business interruption = Difficult measurement issues

53 BI / CBI Loss Measurement Increased Costs Loss of Sales (profit) Less: Savings BI / CBI Loss

54 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 54

55 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 55

56 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 56

57 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 57

58 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 58

59 Non CAT CBI Consideration Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 59

60 BI / CBI Competition Supplier Customer Legal Contractor Framework Trade Regulators Government Economy 60

61 CBI and CAT Losses 61

62 Non CAT CBI Considerations Access to Non Cat CBI Considerations info Delayed Impact Lack of Physical Damage at Insured CBI in Non CAT Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 62

63 CAT CBI Considerations Access to Cat CBI Problem Issues info Delayed Impact Lack of Physical Damage at Insured CAT CBI Non insured periods / Causes Remoteness/ Direct Link/ Causation Alternatives 63

64 CAT CBI Considerations Access to Cat CBI Problem Issues Second / Third Tier info Lack of Physical Damage at Insured Delayed Impact CAT CBI Remoteness/ Direct Link/ Causation Non insured periods / Causes Alternatives 64

65 CAT CBI Problem Issues Access to Cat CBI Problem Issues Second / Third Tier info Lack of Physical Damage at Insured Delayed Impact CAT CBI Remoteness/ Direct Link/ Causation Non insured periods / Causes Alternatives 65

66 CAT CBI Problem Issues Access to Cat CBI Problem Issues info Named / Unnamed Suppliers Lack of Physical Damage at Insured Second / Third Tier CAT CBI Remoteness/ Direct Link/ Causation Delayed Impact Non insured periods / Causes Alternatives 66

67 CAT CBI Problem Issues Access to Cat CBI Problem Issues info Named / Unnamed Suppliers Lack of Physical Damage at Insured Second / Third Tier CAT CBI Remoteness/ Direct Link/ Causation Delayed Impact Non insured periods / Causes Alternatives 67

68 CAT CBI Problem Issues Access to Cat CBI Problem Issues info WAD Lack of Physical Damage at Insured Named / Unnamed Suppliers CAT CBI Remoteness/ Direct Link/ Causation Second / Third Tier Alternatives Delayed Impact Non insured periods / Causes 68

69 CAT CBI Problem Issues Access to Cat CBI Problem Issues info WAD Lack of Physical Damage at Insured Named / Unnamed Suppliers CAT CBI Remoteness/ Direct Link/ Causation Second / Third Tier Alternatives Delayed Impact Non insured periods / Causes 69

70 CAT CBI Problem Issues Access to Cat CBI Problem info Lack Issues of Sublimits Physical Damage at Insured WAD Named / Unnamed Suppliers CAT CBI Remoteness/ Direct Link/ Causation Alternatives Second / Third Tier Delayed Impact Non insured periods / Causes 70

71 CAT CBI Problem Issues Access to Cat CBI Problem info Lack Issues of Sublimits Physical Damage at Insured WAD Named / Unnamed Supplier CAT CBI Remoteness/ Direct Link/ Causation Alternatives Second / Third Tier Delayed Impact Non insured periods / Causes 71

72 CAT CBI Problem Issues Access to info Lack of Cat CBI Problem Issues Physical Concurrency Damage at Insured Sublimits Remoteness/ Direct Link/ Causation WAD CAT CBI Alternatives Named / Unnamed Supplier Non insured periods / Causes Second / Third Tier Delayed Impact 72

73 CAT CBI Problem Issues Access to info Lack of Cat CBI Problem Issues Physical Concurrency Damage at Insured Sublimits Remoteness/ Direct Link/ Causation WAD CAT CBI Alternatives Named / Unnamed Supplier Non insured periods / Causes Second / Third Tier Delayed Impact 73

74 CAT CBI Problem Issues Access to info Lack of Segregation Cat CBI Problem Issues Physical CBI vs. BI Damage at Insured Concurrency Remoteness/ Direct Link/ Causation Sublimits CAT CBI Alternatives WAD Non insured periods / Causes Named / Unnamed Supplier Second / Third Tier Delayed Impact 74

75 CBI Does it work? Necessary Protection against Increasingly important Business Risk Designed for Non-Cat but mostly triggered in Cat situation? Cat CBI get complex and at times result unsatisfactory Standard Policy often does not address many losses` Numerous Coverage Issues Numerous Measurement Problems So does CBI work? (yes what it was intended for) 75

76 Summary and Conclusions Include Express Conditions and Exclusions for CBI Define supplier Define customer Mandatory allocation of BI and CBI Hire Forensic Accountants Consider Hiring an Economist

77 Questions?