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

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. Agenda
Risk Mitigation Strategies for Business
Interruption Risks
Integration of Business Continuity and Insurance
Management
Evolving Risks and Insurance Coverage
Outlook
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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)
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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
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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
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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
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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
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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
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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»
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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)
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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
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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)
www.kessler.ch
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
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