REGENASS-Insurability of high impact low probability events-ID1456-IDRC2014_b


Published on

5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland

  • Be the first to comment

  • Be the first to like this

REGENASS-Insurability of high impact low probability events-ID1456-IDRC2014_b

  1. 1. Disaster and Risk Conference IDRC Davos 2014 Insurability of high impact – low probablity events in the context of BCM Kessler Consulting Inc. Johannes Regenass © Kessler 2014 1
  2. 2. Agenda Risk Mitigation Strategies for Business Interruption Risks Integration of Business Continuity and Insurance Management Evolving Risks and Insurance Coverage Outlook © Kessler 2014 2
  3. 3. Financial vs. operational risk mitigation • PD/BI Insurance -> Financial risk mitigation – Balance Sheet and Cash Flow protection – Decreasing volatility of financial results – Asset protection • BCM -> Organisational risk mitigation – Operational reaction on a business critical incident – Focused on operational resilience (services and products) – Assurance of providing services in the short term and increasing the resilience in the long term (e.g. reduction in loss of clients due to failure of delivery) © Kessler 2014 3
  4. 4. Historical approach Insurance • Based on a business interruption analysis and financial KPI • Pure financial protection • Resilience and reputation not covered • Sitting within the responsibility of financial of legal department BCM • Based on the BIA • Operational reaction to „stay operational“ • Reputation risks addressed • Sitting within operational or IT departments © Kessler 2014 4
  5. 5. Integrative approach Business interruption analysis and financial KPI define insurance coverage The BIA defines based on business and clients needs the recovery strategy of organisations Both requirements should be integrated, to assure, that insurance coverage does support the recovery strategy and vice versa © Kessler 2014 5
  6. 6. Effect of integration: Total Cost of Risk Reduction Financial Impact / Post Incident Risk Mitigation Costs Costs for Risk Mitigation after the incident (M) Insurance Fix Costs Event Start Revenue Losses BCM Risk Reduction (FN1) BCM and Insurance Risk Reduction (FN2) RTO / Start Alternative Services Gross Financial Impact (FG) Restart normal operations © Kessler 2014 6
  7. 7. Evolving Risks • Technological development and the ongoing globalisation create new risks – global interconnectivity is just about to start • These risks are new / evolving – so claims experience and therefore statistics are missing • As we do not know exactly what we are facing, risk management and insurance must be eager to learn and integrate these risks in an integrative risk management approach © Kessler 2014 7
  8. 8. Evolving Risks and the insurance market • Insurance companies and products have not been among the most innovative industries – focussing on the traditional business • After the recent – and still ongoing – soft market innovation is increasing to realise new business opportunities • Especially in the area of evolving risks just as cyber, supply chain and reputation risk we see some new and interesting products on the market © Kessler 2014 8
  9. 9. Cyber Risks • New products, mainly customized for corporate clients • No commodity yet – risk engineering and underwriting costs fairly high • Coverage quite limited especially for BI • BUT: The market is quickly moving forward and once there is sufficient claims experience underwriting will move these products into the «commodity market» © Kessler 2014 9
  10. 10. Supply Chain Risks • Supply chain risk products are similar to cyber risk products: Customized and rather limited in coverage for BI • As globalization is moving forward these coverage become more interesting • Some solutions are difficult in terms of regulatory problems arising when using an international umbrella coverage (DiL/DiC) © Kessler 2014 10
  11. 11. Outlook • All organisations will face increasing risks in business interruption due to the ongoing globalisation, increased weather risks and the technological development • Critical infrastructure provider more and more are going private – increasing the pressure on financial results – which can lead to a higher risk exposure for business interruption • Insurance can provide financial coverage for BI risks, which can due to liquidity and balance sheet protection increase the resilience of organisations – but we need to bring these solutions to the “commodity market” to have an effect risk management tool © Kessler 2014 11
  12. 12. The Kessler Companies • The Leading Swiss Enterprise in Risk and Insurance Consulting • Business Relationship with the 36 of the Top 100 Companies and with 33% of the Top 500 Companies in Switzerland • 250 Employees in Switzerland • Partner of Marsh & McLennan Companies (MMC) Kessler Consulting AG • Family owned, established in 1970 • Advisory Services in Risk Management for national and international Organisations Kessler & Co AG • Family company in its third generation (founded 1915) • Insurance broking and advice • We are the Swiss partner in the global Marsh Network © Kessler 2014 12