12-0268 nat cat pack full v5

The NAT CAT PACk

CoNTeNTsThe NAT CAT PACk: our guide To besT PrACTiCe iN relATioN To NATurAl CATAsTroPhe risk mANAgemeNT ANd TrANsfer

- NATurAl CATAsTroPhe risk mANAgemeNT

- NAT CAT risk mAP

- NATurAl hAzArds ANd CATAsTroPhe modelliNg

- suPPly ChAiN risk mANAgemeNT

- AfTer The eArThquAke: suPPly ChAiN resilieNCy

- busiNess CoNTiNuiTy mANAgemeNT

- busiNess iNTerruPTioN iNsurANCe reviews

- mArsh disAsTer reCovery PorTAl

- guy CArPeNTer CAT CeNTrAl

- bowriNg mArsh: globAl ProPerTy

- lessoNs leArNed from The CATAsTroPhes of 2011

- iNsurANCe ClAims PrePArATioN

- susTAiNAbiliTy The ChANgiNg ClimATe of risk

- ProPerTy susTAiNAbiliTy greeN buildiNgs

Background

With natural catastrophe (naT caT) events increasing in

frequency and severity, and insurers scrutinising

exposures more than ever, the necessity for proactive

risk management and swift post-loss support is clear.

The increasing complexity of risks, combined with the

desire for greater transparency from markets and

supervisory authorities, is placing ever greater demands

upon organisations to provide easy access to accurate

property exposure information.

up-to-date and detailed naT caT information is of

paramount importance, allowing for an informed

decision-making process in relation to loss prevention

and resilience, loss mitigation, and risk transfer for direct

naT caT risks, but also for indirect risks such as

exposures of key customers or suppliers.

regular checks, for example, on the risk of natural

hazards and the adequacy of naT caT limits, are

essential for efficient and adequate resource allocation,

and risk financing decisions.

naT caT Pack

The naT caT Pack is our guide to best practice in risk

management and transfer of natural catastrophe

exposures. The naT caT Pack includes the following:

NAT CAT Risk Map This is an interactive map of your complete portfolio of assets, including suppliers locations

where appropriate. From a single view you can see all your

property risk data, and now this includes naT caT hazard

exposures. In collaboration with cS Stars and using

naTHan (Munich re geoSpatial Solutions natural

hazards risks database), we can offer naT caT exposure

information using a unique licensing agreement.

The naT caT risk Map includes natural hazard data for

all your locations, and suppliers on request, through the

risk goggles view in Stars Enterprise. This can include a

portfolio exposure assessment report and workshop, as

described below. This initial step is essential for full

portfolio view, helping to identify hot spots requiring

further consideration.

NAT CAT exposure assessment a Portfolio Exposure assessment (PEa)* assesses the exposures of your

portfolio and accumulation of risks. The assessment

consists of the reporting of your portfolio on naT caT

exposures and accumulation analyses in relation to the

cresta Zones in which your sites are located using

naTHan. The portfolio assessment allows for analyses of

natural hazards at up to 5,000 locations worldwide with

the position of each individual risk identified at the

Natural catastrophe risk maNagemeNt

* a PEa provides the zoning information and maximum limits to highlight locations that require further review; the next step is more detailed modelling that looks at the likelihood of events and specific loss estimates for identified hot spots, which provides a more accurate picture.

2 Natural Catastrophe Risk Management

maximum level of detail. This can include your own

locations and that of suppliers, and can be extended to a

full vulnerability and loss prevention assessment,

providing information required for risk management,

transfer, and naT caT modelling.

NAT CAT modelling once the hot spots have been identified through the naT caT risk Map and/or exposure

assessment, detailed modelling is the next step. Marsh has

a team of global practitioners specialising in state-of-the-

art computer modelling techniques to analyse property

risks for multiple natural hazard perils in terms of

probability of occurrence. This draws upon a worldwide

database of historical and probabilistic information

relating to earthquakes, hurricanes, tornados, and hail.

knowing the 250-year or 500-year loss level and the

average annual loss (aaL), combined with the exposure

assessment and coPE data, will give you superior

knowledge of your risks, strengthening your position in

the insurance marketplace.

NAT CAT event scenario workshops Bringing together experts from all relevant areas of risk (property, business

interruption, environmental, liability), we offer scenario

workshops that identify the worst loss naT caT scenario

and the risk and insurance implications arising from the

event. We can then identify risk transfer gaps, areas that

require additional analysis, and potential solutions. For

example, in relation to your business interruption

exposures, we can quantify your potential losses both

the maximum loss and the mitigated loss. We can also

offer specialist business continuity management advice,

specific testing of your business continuity plans, and an

audit for business interruption insurance purposes.

Environmental impairment study as a separate project or an extension of the above, our Environmental Practice will

undertake a specialist analysis of the potential likelihood

and significance of pollution and environmental damage

incidents that may occur as a result of a naT caT event.

assessing possible environmental loss scenarios as they

relate to regulatory and third party liabilities for pollution or

environmental damage alongside the insurance coverage

for environmental liabilities provides valuable information

about the potential gaps in insurance coverage and

highlights how environmental impairment liability insurance

may address these gaps.

Guy Carpenter Cat Central CAT-i bulletins guy carpenters gc analytics unit produces caT-i bulletins that

provide regular updates on events likely to incur significant

industry losses. caT-i bulletins cover major natural

catastrophes worldwide, including major uk and European

floods, worldwide tropical cyclones, and earthquakes.

NAT CAT placement This includes not only your local Marsh placement team but also the specialist international

placement services of Bowring Marsh. We can also offer

parametric loss products that do not need damage to have

occurred, but instead have weather-related loss triggers,

for example, WindX-SITM, ace Storm Tracker & Spectra,

and capital Markets Parametric.

We also encourage insureds and insurers to adopt

property sustainability principles in relation to property

policies for example, green building and resilient

repairs clauses. If reinstatement is required after an

event, why not do it in an environmentally friendly and

more robust way?

3Claims If you suffer loss as a result of a naT caT event, we will help you through the insurance claim process and

offer support and guidance at the time you need us most.

From updates provided by Marshs disaster recovery

Portal, to claims representation and preparation,

including a catastrophe response Plan (caT Plan), this

global service provides assistance with pre-loss advice

and post-loss assistance. our international specialist

claims professionals, including the Forensic accounting

and claims Services (FacS) team, will ensure the burden

of the insurance claim is minimised, leaving you to focus

on the recovery of business.

UNISDR Making Cities Resilient We are a partner of the united nations International Strategy for disaster

reduction (unISdr) and support its resilient cities

campaign. Working with mayors and governments, we

assist unISdr in making cities, buildings, public spaces,

and infrastructure more resilient to natural hazards.

HoW you can BEnEFIT

The proactive risk advice we can offer will give you deeper

insights of naT caT exposures around the world (for your

business, your suppliers, and your customers), creating

opportunities to further improve risk management. By

exploring business continuity management needs,

business interruption insurance options, and quantifying

potential naT caT losses, you can make informed risk

management and transfer decisions.

The availability of catastrophe data puts you and your

Marsh broker in a stronger negotiating position and

provides essential information on your exposures. The

transparent and consistent data can allow for more

competitive and more accurate naT caT insurance rates,

potentially lower deductibles, and wider coverage options.

once the worst-case catastrophe exposure is

determined, you can make informed decisions on the

necessity of more detailed studies for the most heavily

exposed parts of the portfolio. Marsh can help to design

a financial and/or technical mitigation programme in line

with your business goals and objectives.

With Solvency II implementation there is an increased

need to capture naT caT exposure data relative to insurer

capital requirements. This additional information will assist

insurers to better manage their capital, allowing for more

attractive rates for your insurance cover.

WHo SHouLd Buy THESE SErvIcES?

Those with significant naT caT premium spend, claims

history, or exposure (including supply chain risks), would

benefit from these services. Those affected by naT caT

events, both directly and indirectly, will be able to choose

the appropriate items from the naT caT Pack.

Potential users for the naT caT risk Map and portfolio

exposure assessment (our initial step in our best practice

guide) will be:

Those with a large portfolio of small and mid-size sites, such as real estate clients and smaller network sites of

telecommunications.

companies with a number of service centres in which each individual site would not exceed a given naT caT

limit (the accumulation of sites in a certain risk area

might).

Those involved with mergers and acquisitions as part of due diligence.

Those with high naT caT rates or who have difficulties placing naT caT.

companies with complex supply chains that would like further information on the risks associated with their

suppliers locations.

any business with a large portfolio of locations for which placement would include naT caT cover.

The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

In the united kingdom, Marsh Ltd. is authorised and regulated by the Financial Services authority for insurance mediation activities only.

copyright 2013 Marsh Ltd all rights reserved

graPHIcS no. 11-0126

coNtactFor more information please contact your local Marsh representative or contact:

caroLInE WooLLEyEMEa Property Practice LeaderMarsh+44 (0) 20 7357 2777Mobile: +44 (0) 7800 [email protected]

ron dE BruIjnEMEa Property Practice LeaderMarsh risk consulting+31 10 4060394Mobile: +31 [email protected]

juLIE SPEEdBusiness development coordinatorrisk Practices, Marsh EMEa+44 (0) 20 7357 [email protected]

BackgroundWith natural catastrophe (naT caT) events increasing in frequency and severity, and insurers scrutinising exposures more than ever, the necessity for proactive risk management and swift post-loss support is clear. This is why we have created the naT caT risk Map. This is an interactive map of your complete portfolio of assets, including suppliers locations where appropriate. From a single view you can see all your property risk data, and now this includes naT caT hazard exposures.

The increasing complexity of risks, combined with the desire for greater transparency

from markets and supervisory authorities, is placing ever greater demands upon

organisations to provide easy access to accurate property exposure information.

up-to-date and detailed naT caT information is of paramount importance, allowing

for an informed decision-making process in relation to loss prevention and resilience,

loss mitigation, and risk transfer for direct naT caT risks, but also for indirect risks

such as exposures of key customers or suppliers.

regular checks, for example, on the risk of natural hazards and the adequacy of

naT caT limits, are essential for efficient and adequate resource allocation, and risk

financing decisions.

naT caT risk Map packagedeveloped in association with Marsh,

this forms part of the naT caT pack,

our guide to best practice in risk

management and transfer of natural

catastrophe exposures. The naT

caT risk Map expands upon the

use of traditional risk Management

information systems (rMis) by

incorporating a location-based

graphical interface that integrates

location geocoding, external events,

and mapping services with your location

risk data.

The naT caT risk Map package

includes:

naT caT risk Map for risk goggles (including a report of findings)

naT caT risk Map workshop

on-map and email alerting service for global naT caT events

NAT CAT Risk MAp

2 Natural Catastrophe Risk Map

naT caT risk Map

sTars enterprise provides complete

visibility into your property portfolio and

exposure values by tracking detailed

construction, occupancy, protection, and

exposure (cope) information; plus loss

prevention and loss control information

for each property. related documents

and images can also be attached to create

a complete profile for any asset. natural

hazard data can now be added into the

risk goggles view.

utilising advanced global geocoding

services and an intuitive user interface,

end-users are able to review and update

the longitude and latitude co-ordinates

created by the system. a collaboration

between Munich re geospatial

solutions and Marsh opens up a new

way of looking at naT caT risk. This

lets clients capture natural hazard data

for co-ordinates for assets such as oil

platforms, communication towers, and

rail crossings, or supplier locations that

are not associated with traditional street

addresses.

a report of findings is provided in the

form of a portfolio exposure assessment

(pea)*. The report identifies your portfolio

of naT caT exposures and performs

accumulation analyses in relation to

the cresTa zones in which your sites

are located. This allows analyses of

natural hazards at up to 5,000 locations

worldwide with the position of each

individual risk identified at the maximum

level of detail.

* pea provides the zoning information and maximum limits to highlight locations that require further review; the next step is more detailed modelling that looks at the likelihood of events and specific loss estimates for identified hot spots, which provides a more accurate picture.

Marsh 3

naT caT risk Map Workshop

Bringing together experts from cs sTars and Marsh, we will demonstrate the system

and ensure you understand the data provided. There will be an opportunity to consider

all relevant areas of insured risk (property, business interruption, and environmental

liability), as well as other areas of risk that might currently be out of the scope of cover.

We will help identify the worst naT caT loss scenario, and the risk and insurance

implications arising from the event. We can then start to identify risk transfer gaps, areas

that require additional analysis, and potential solutions.

on-Map and eMail alerTing

on-map and email alerting is included for over 100 different us weather alerts, tropical

cyclone tracking, and global earthquake events. You decide the events to track and the

data is archived against your locations for future analysis.

on-map alerting helps you quickly recognise areas of critical concern. Monitoring against

your key performance indicators ensures you are visually alerted whenever specific

thresholds are met or when serious events occur.

emails can automatically alert your management teams in real-time when an event

impacts your location to speed up your response time and improve communication

across your organisation.

in addition, you will be registered with guy carpenters gc analytics unit, which

produces caT-i bulletins that provide regular updates on events that are likely to incur

significant industry losses. caT-i bulletins cover major naT caT events worldwide,

including major uk and european floods, worldwide tropical cyclones, and earthquakes.

STARS Enterprise Help About My Profile LogoutQuick Search

Earthquake Zone - Property Values

My STARS

CS STARS LLC, a business unit of Marsh, serves the technology needs of risk managers and claims professionals, delivering integrated software and services for risk, claims, and compliance management. CS STARS primary software platform, STARS Enterprise, supports comprehensive risk management, claims administration, enterprise risk management (ERM) and compliance and safety management.


In the United Kingdom, Marsh Ltd. is authorised and regulated by the Financial Services Authority for insurance mediation activities only.

Copyright 2013 Marsh Ltd. All rights reserved.

GRAPHICS NO. 13-0165

FurTher opTionsplease note, this is recommended as

the first step in establishing a best

practice approach to naT caT. Further

detailed naT caT modelling can be

performed for the hotspots identified in

the naT caT risk Map package. property

surveys, including vulnerability and

loss assessments, will help manage risk

at each location, while providing the

relevant data for any detailed naT caT

modelling assignments.

Marsh has a team of global practitioners

specialising in state-of-the-art computer

modelling techniques to analyse property

risks for multiple natural hazard perils in

terms of probability of occurrence. Marsh

draws upon a worldwide database of

historical and probabilistic information

relating to earthquakes, hurricanes,

tornados and hail. knowing the 250-year

or 500-year loss level and the average

annual loss (aal), combined with the

data from the naT caT risk Map, will give

you a superior knowledge of your risks,

and strengthen your risk management

information and your position in the

insurance marketplace.

The workshop may expose risks or

identify information gaps that require

further consideration, including property

loss prevention, business interruption

values, environmental liability, and supply

chain or business continuity response and

recovery.

These further solutions can be discussed

with your Marsh representative or the

contacts listed here.

inTegraTion WiTh sTars enTerprise sTars enterprise includes over 20

modules. Features that can easily be

added to the naT caT risk Map package

include:

renewal data collection

property and Facility audits

incident reporting

claims Management

claims Benchmarking

CoNTACTscaroline WoolleYeMea property practice [email protected]+44 20 7357 2777

Mark holTcs sTars Business development continental [email protected]+44 20 7357 3674

ron de BruijneMea practice leader, property risk consulting & Work Force strategies [email protected]+3 1 10 406 0394

julie speedBusiness development coordinatoreMea risk [email protected]+44 20 7357 2608

Natural hazards aNdcatastrophe modelliNg

Marsh Risk Consulting 1

What are natural hazards?a natural hazard is an unexpected and uncontrollable natural environmental phenomenon of unusual magnitude, which can result in widespread destruction of property and lead to injury or death.

Why do they matter?

at least one type of natural hazard affects every

location on earth. a natural event is recorded as a

natural catastrophe when damage to property,

number of deaths or injuries or serious

environmental damage reaches certain

predefined criteria. organisations have also seen

an upward trend in losses from natural

catastrophes emerge over the past few years -

see Fig 1.

natural catastrophes have the ability to cause

vast and unexpected damage. history has shown

how a single windstorm, earthquake or flood can

destroy property, interrupt business and cause

severe and immediate impact on any companys

bottom line.

natural hazards pose considerable challenges for

businesses that are committed to reducing their

exposure to physical damage and business

interruption.

the risk posed to a company by natural hazards

will depend on:

Hazard the frequency and severity of events in a given geographical area

Vulnerability the extent of damage to property at a given event intensity

Exposure the exact location and value of property

Risk financing what proportion of the loss is retained by the company and what insurance or

other risk financing mechanisms are in place.

Companies seeking to protect their business from

the risk of natural hazards should re-evaluate the

level and amount of information they collect about

their exposures, what measures they are taking to

mitigate the consequences of catastrophic events

and what insurance protection they have in place.

the marsh rIsK ConsultInG solutIon

marsh risk Consultings risk management

solution to natural catastrophes focuses on:

identifying the hazard in terms of its geographical distribution and potential intensity and

frequency, in relation to the locations at risk.

quantifying the potential financial exposure in order to help clients design optimal insurance

and risk financing solutions

managing the risk through enhanced risk mitigation strategies.

2 Natural Hazards and Catastrophe Modelling

Fig 1.

Great natural Catastrophes WorldWIde 1980 - 2011

Source: 2012 Mnchener Rckversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE - As at January 2012

0

50

100

150

200

250

300

1980 1985 1990 1995 2000 2005 2010

Overall losses (in 2011 values)

(US$

bn

)

Insured losses (in 2011 values)

Trend overall losses

Trend insured losses


PHASE 1IdentIfICatIon

understanding the magnitude of your natural hazards

exposures is vital. facilities located in harms way must be

identified. damage to your companys physical assets will

interrupt operations and the ability to do business.

the preliminary examination of your property schedule

can determine:

proximity to earthquake faults;

distance to the coast;

flood exposure; and

windstorms and storm-surge potential.

using historical event records, geological and

environmental data, our specialists assess the number,

intensity and frequency of natural hazards. By analysing

the combined hazard and vulnerability information, they

estimate the maximum potential losses in property, stocks,

equipment, supplies and revenue.

often a detailed evaluation of site(s) most at risk is necessary

to better understand the business interruption profile.

data from the evaluation helps to identify the relationship

between physical assets and critical operational components

and to identify site specific risk. Clients can then used this data

to develop a cost benefit study of risk improvement options.

this phase is undertaken through:

Implementing a site inspection and analysis to gather detailed site-specific information as well as location data

and business information.

applying marsh risk Consultings assessment skills and expertise to identify vulnerable areas of buildings,

structures and equipment. several potential

improvement options can be identified for each area.

the development of a detailed cost-benefit analysis based on the cost of each option and the expected reduction in

probable maximum loss and business interruption.

phase 2QuantIfICatIon

Knowing an exposure exists and potential risks it presents

to your organisation is a beginning. In order to quantify the

risk, design optimal risk fanancing and priority mitigation

efforts potential loss levels must be developed.

scientifically sound loss expectancies can be developed.

marsh risk Consulting uses state-of-the art computer

modelling to analyse physical damage and property

business interruption risks for all types of natural hazard

perils.

the model draws upon a worldwide database consisting of

both historical and scenario-derived information. potential

losses are established by running historical events against

the current exposures of our clients. a large number of

random events are also run and the losses assessed from

each. taking into account the annual probability of each

event, levels of losses are derived that can be exceeded

with different levels of probabilities.

the statistical process, through the simulation of thousands

of random events, produces loss estimates. the input data

can range from very broad information, including general

location and building occupancy, to the highly specific,

including detailed construction characteristics.

PHASE 3manaGement

once you determine the expected loss levels, responsible

management programmes and recommendations on the

mitigation strategy can be developed. the options are

extensive and may include:

advice on transfer, retention level and supply chain adjustments

assistance on corporate and site preparedness programme upgrades and critical process equipment or

material relocation

Quality checks to ensure that the agreed mitigation procedures and measures are in place

advice on reducing natural catastrophe exposure in the most cost effective way

recommendations for further cost effective natural hazards loss control mitigation procedures.

4 Natural Hazards and Catastrophe Modelling

World map of natural hazards


the information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. the information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

marsh ltd. is authorised and regulated by the financial services authority for insurance mediation activities only.

Copyright 2013 Marsh Ltd all rights reserved

GRAPHICS NO. 11-0113

Case studyour client needed to assess their aircraft hull exposure to hurricane for airports in texas and florida in order to

ensure that adequate insurance was in place and monitor risk accumulation. marsh risk Consulting conducted a

fully probabilistic hurricane modelling, using state of the art modelling data, in conjunction with statistical

modelling of hull losses to quantify exposures to different return-period events. after the project was completed,

the client was in a better position to understand potential losses to hurricane exposure, validate appropriateness

of insurance limits and identify airports where the level of risk accumulation had breached their risk tolerance

levels.

WorKInG WIth marsh

marsh is a recognised leader in providing both traditional and innovative solutions to clients risk

retention levels, insurance programme design and risk financing strategies. We have a global natural

hazard team of experienced professionals that can help clients to identify, quantify and manage

natural hazard risks to help them better prepare for extreme adverse natural catastrophes.

In todays global business environment, supply chains are becoming increasingly complex and the dependence being placed on them is unprecedented.

Many organisations are under enormous pressure to reduce costs

in their supply chain and improve efficiency, whilst also finding

ways to improve customer service and responsiveness. Reducing

costs can often result in the unintentional increased exposure to

risks of disruption, and companies must understand and manage

the complex web of risks that arise. A Marsh risk survey1 identified

that although 94% of organisations agreed that supply chain is

important, only 58% have evaluated the risk exposures derived

from the supply chain. The consequences of an interruption in the

supply chain can be severe, as demonstrated by the increased

severity and frequency of natural catastrophes, including not just

loss of revenue and decreased profitability, but a reduction in share

price, and in extreme cases, permanent damage to reputation and

brand. A survey2 indentified natural hazard exposure as the top risk

in the supply chain. Marsh has therefore developed innovative

solutions to these supply chain issues, including both a rigorous

assessment service and a risk transfer product.

Although property damage/business interruption policies can

cover interruption to a supply caused by physical damage at a

suppliers premises (often limited to first tier suppliers), they do not

cover the non-damage interruptions that are so often experienced,

such as strikes, political risk incidents and port disruptions. Another

example is the eruption of the Eyjafjallajkull volcano in Iceland

that caused significant interruption to air transport. There was little

or no damage in most cases, but the disruption was significant.

Marsh has worked with leading insurers to develop insurance

products to meet this client need and fill this gap in the market.

Marsh Risk Consulting offers an assessment service that, as a

minimum, will provide all the qualitative and quantitative

information needed to obtain a quote for this policy. However, it is

recognised that the effective management of supply chains requires

a more detailed approach, encompassing risk, operational and

financial considerations. Marsh works with these separate business

functions to find the best solutions for the business as a whole. The

assessment provides sufficient data to enable informed decisions

in relation to risk transfer, but also in relation to improvements and

the allocation of resource. The assessment service includes:

risk identification;

risk measurement;

risk improvement; and

risk treatment.

RIsk IdEnTIfICATIon Marshs supply Chain Risk Management (sCRM) Practice

undertakes a comprehensive review of supply chain exposures. This

begins with the mapping of the internal and external supply chain

(including services) and continues with consideration of the key

operational processes or services and potentially critical failure

points. We can also include a natural hazard risk map of suppliers

using our exclusive broker access to a natural hazard zone database.

RIsk MEAsuREMEnT Many businesses can name the suppliers that represent the

biggest threat, but the actual financial impact is rarely

quantified. using a variety of tools including impact modelling,

forensic accounting and gap analysis, the potential loss of

gross profit is established. This is shown in terms of the

maximum exposure and, more importantly, the mitigated loss.

Supply chain riSk management and riSk tranSfer

1 facing an uncertain future, 109 uk firms polled in 2009

2 Business Continuity Institute survey (BCI) 2010


In the united kingdom, Marsh Ltd. is authorised and regulated by the financial services Authority for insurance mediation activities only.

Copyright 2013 Marsh Ltd All rights reserved GRAPHICs no. 12-0202

RIsk IMPRovEMEnTs once the critical operations and suppliers have been established and the exposures quantified, appropriate risk management strategies can be developed in order to achieve an adaptive and resilient supply chain. using Marsh Risk Consultings expertise in business continuity, existing mitigating controls are benchmarked against best practice and a suitable plan can be established. our experts balance efficiency with fragility, helping to achieve savings while minimising the risks involved.

RIsk TREATMEnTInsurance underwriters use the risk analysis to make qualified decisions about a clients exposures and will set the rate accordingly. The programme design is customised to the needs of the business and the level of cover required. The risk improvements identified in the assessment process (once implemented) will ultimately help reduce the cost of the insurance.

THE AssEssMEnT PRoCEss

Workshops and stakeholder interviews to determine key exposures and gather sufficient qualitative and quantitative data for the insurance application.

Access to Marsh experts including business continuity consultants, the property risk practice, modelling and business analytic professionals, and forensic accountants.

The use of models to map the risks, benchmarking tools to compare existing solutions to best practice, and financial analysis in the quantification of loss.

Presentation of findings in a report that will enable the business to make informed risk management and risk transfer decisions.

The process is continuous, therefore a monitoring and control system can be devised to ensure improvements are embedded, while remaining flexible to

the dynamic nature of supply chain risk.

InsuRAnCE PRoduCT fEATuREsThe product reacts to an insured event that is not limited to physical loss or damage.

Types of covered events can include pandemic, strike, political risk or insolvency, therefore stretching way beyond existing products available in the market.

Coverage is defined as disruption or delay in the receipt of named products, components or services from a named supplier.

The loss of gross profit/earnings is measured during the assessment process and used to determine a fixed claim amount per working period.

The pre-determined fixed claim amount provides certainty of recovery levels and a more streamlined claim process.

Extra expenses over and above normal operating costs incurred by the insured

for loss mitigation can be included.

ConTACTsCARoLInE WooLLEyEMEA Property Practice Leader [email protected]: +44 20 7357 2777

MARkus GRoTHMarsh Risk [email protected]: +49 40 3769 2264

Rod RATsMAMarsh Risk [email protected]: +44 1908 846012

JuLIE sPEEdBusiness development Coordinator, EMEA Risk [email protected]: +44 20 7357 2608

key benefitS Innovative product offering to meet

a gap in the market insurance

policy to cover non-damage

business interruption risks arising

from your supply chain

Marsh can provide the full spectrum of services from

identification of key risk

exposures in the supply chain,

through to risk treatment

solutions including risk transfer

The development of a risk management plan providing

options to reduce the potential

exposure to your business, and

provide information to assist in

business and operational decisions

Encourage business alignment through executing a risk strategy

in collaboration with key

suppliers; Marsh can offer

ongoing analysis and assessment

if required

The assessment includes quantification of loss for key

suppliers to: identify the financial

impact on the business; provide

vital information required for

financial decisions; assist in the

allocation of resource; and give

insurers a basis for establishing

an insurance quotation.

After the eArthquAke: Supply chAin reSiliency

There was devastation and loss in all regards, but

particularly in relation to property and life. The death-toll

was estimated at 15,188, with 8,742 missing and

5,337 injured.1 Evacuees totalled 108,672.

The Japanese Government estimates damages caused

directly by the earthquake/tsunami mount up to

between US$197bn and US$307bn. The direct damage

to the Japanese economy is already clear, the IMF made a

downward revision of Japans economic growth in 2011

from 1.6% to 1.4%, and there are already

102 earthquake-related bankruptcies. Ibaraki, Iwate,

Miyagi, Fukushima the worst stricken areas together

account for 6.5% of GDP. Japans GDP was U$5,300bn

in 2010.2

Our claims teams are working with clients in relation to

their direct losses as a result of the event, offering

support and claims preparation. However, it is the

indirect consequences in the supply chain that are being

felt in the rest of the world. Japan accounts for around

20% of global production of semi-conductors, 60% of

silicon wafers and 90% of bismaleimide-triazine, or

BT resin. For automobile manufacturers, supplies of

around 230, out of the roughly 3,000 parts required to

make the average car, are either running short or out of

supply. It is the indirect losses that are the focus here.3

RISk ManaGEMEnT

Competitive organisations have shortened their supply

chains by removing excess inventory or capacity,

pushing non-core services to lower cost providers,

shedding/consolidating physical assets, and reducing

third party providers or suppliers. The conflict between

efficiency and risk is apparent, and business continuity

and loss mitigation must be a top priority as all this

results in greater sourcing risk. The focus must be on risk

management, and informed risk transfer decisions can

then be made. Preparation is key, including analysis of

single points of failure (SPOFs) with these risks being:

quantified start with the generation of revenue, calculate gross profit and potential increased costs;

prioritised based on quantitative and qualitative information, and consideration of interdependencies.

It is then possible to determine the level of investment

needed to manage the risk at a very detailed level,

including consideration of risk transfer.

at 14:46 (JST) on 11 March 2011 the worst earthquake in the history of Japan struck Japans north-eastern coast. It reached a magnitude of 9.0 on Richter Scale and its epicentre depth was 24km. Following the earthquake, a tsunami battered, not just the coast, but it penetrated inland up to 10km with a depth of 25m in places. The area was then, literally, faced with meltdown as Fukushima Daiichi nuclear power plant reached a Level 7 crisis rating (the same as Chernobyl).


Marsh Ltd. is authorised and regulated by the Financial Services authority for insurance mediation activities only.

Copyright 2013 Marsh Ltd. all rights reserved.

GRaPHICS nO. 11-0132

RISk TRanSFER

TRaDITIOnaL COvER

Once you have a clear picture of risks and exposures

throughout the various tiers in the supply chain, risk

transfer can be considered. There are multiple insurance

implications in relation to Japan. In relation to traditional

property damage and business interruption policies, the

key value chain extension clauses include:

Suppliers extensions: this covers your own loss of profit/increased costs caused by insured damage.

key suppliers can be named (specified), and there is

an option for unspecified cover (limited capacity).

Cover is often restricted to first tier suppliers only, and

a separate limit usually applies. There are sometimes

fewer insured perils.

Customers extensions: as above, this covers interruption caused by insured damage at customers

premises. The main customers are named (specified),

and unspecified cover may be available.

aLTERnaTIvE SOLUTIOnS

With the changing business structures (supplier reliance

and complex supply chains) and changing risk events

(non-damage events such as strikes, ash cloud, cyber

crime) traditional property damage policies are no

longer sufficient.

Whilst we should concentrate on the effect on

businesses, rather than necessarily the cause, we need

to review the interaction of policies and consider the

current gaps in cover. Previously there has been little or

no cover available for non-damage related events.

Some examples are provided above of non-damage

events, but there are also aspects of damage related

events that might not be covered under traditional

policies such as loss of attraction and the rolling

blackouts imposed in Japan.

There are bespoke solutions available: we have worked

with Lloyds syndicates and reinsurers in this regard.

However, for the last two years we have worked with two

key insurers in the development of specific supply chain

solutions for non damage events.

The main features of the cover are as follows:

cover for loss of profit/increased costs of an interruption to own production/operations as a result

of an interruption in your supply chain;

includes cover for damage and non-damage interruptions (strikes, ash cloud, rolling blackouts,

restricted access);

there are limited exclusions, the aim is for wider cover;

the interruption is to a named supply and supplier (product or service);

the cause can be anywhere in the chain, it is not restricted to the first tier;

there is a pre-agreed amount (e.g. daily rate), thereby simplifying and speeding up the claims process.

For more information on how we can help you with managing your supply chain risk, in terms of the assessment process or the risk transfer piece, please contact:

CaROLInE WOOLLEyEMEa Property Practice LeaderMarsh+44 (0)20 7357 [email protected]

MaRkUS GROTH Marsh Risk Consulting+49 40 3769 [email protected]

ROD RaTSMa Uk Leader of Business Continuity ManagementMarsh Risk Consulting+44 (0)1908 [email protected]

Footnotes:

1 The national Police agency (Japan)

2 International Monetary Fund

3 The Economist Intelligence Unit, 4 april 2011, Japan business: Ripple effects

The Wall Street Journal online, 17 May 2011, Construction, Manufacturing Fall

Business continuity management


The world is a riskier place. Emerging threats such as product recalls, with the increasing vulnerability of sophisticated global supply chains and unpredictable natural catastrophies, mean that the threat of business interruption is as great as it has ever been.

It is not just physical assets and staff that are at risk. Customer confidence, brand

and reputation are all susceptible to badly managed incidents or events. Lost

market share is almost impossible to recapture.

In many markets, failure is not an option. The investment community expects

companies to be well governed and competent in managing periods of volatility.

Insurers increasingly require evidence of effective risk management before

providing insurance cover. Market leaders expect the companies that supply

them with products and services to guarantee continuity of supply.

All risks are interconnected and businesses cannot prevent certain threats from

materialising. However, businesses can assess exposure to the risks that they

know about. The need for business to address the effects rather than the

unpredictable and often uncontrollable causes of risk is greater than ever.

Faced with a range of these unexpected and unpredictable risks, all businesses

need to prepare for the consequences. That means building resiliency into your

organisation and its supply chain as well as developing robust business

continuity and crisis management plans.

2 Business continuity management

Business continuity management (BCM) is all about creating assurances, so it helps when you can depend on your advisers to provide assurances of their own. When your organisation works with Marsh Risk Consulting to develop your business continuity management programme, you can be sure of solutions that prepare you for the unknown, while at the same time are fit for purpose for your organisation, its needs, and the sophistication of its current plans and programmes.

At Marsh Risk Consulting, we are in the business

of risk. We have in depth knowledge of industry

sectors and the problems that each faces.

We understand how threats to business are

changing and the pressures that this creates for

companies to refine and improve the quality of

their BCM. However, we recognise that every organisation is unique in the way that it

conducts its business. We take time to

understand each clients aims and objectives

and the context in which business continuity

needs to be established. Few organisations have

done nothing, so we also make sure that we

understand what BCM work has already been done. A key characteristic of our advice is

therefore assisting our clients in defining the

level of preparedness that they require in

different parts of their businesses for their own

unique risk profile.

This approach means that we work with a full

spectrum of clients, from single site

manufacturers developing BCM for the first time, through companies with existing BCM looking to review and exercise plans, to large and

sophisticated multinationals seeking to optimise

their investment in BCM and develop a corporate response to both strategic and operational

threats. Whoever our clients are and whatever

their aims, our goal remains the same to raise

the bar of their business continuity management.

BCM adviCe fRoM MaRsH Risk Consulting


at marsh Risk consulting, we think about our clients businesses according to their strategic

objectives and the critical processes that underpin these, and concentrate on building resilience

around these.

Fit for purpose advice and deliverables. our solutions dont come out of a box. Every client gets

advice that is appropriate for their

industry sector, size, critical issues and

level of sophistication. We recognise

and respond to challenges that may

exist within an organisation, such as

diversity between different business

units, multinational operations or

extensive supply chain dependencies.

We tailor our reporting output to meet

the culture of our clients, building

plans in reference card format, flow

diagrams, online and in traditional

paper based formats.

A focus on protecting reputation, revenue and key processes, not simply assets and facilities. Business continuity management used to be

about protecting buildings and IT, and

for some advisory companies it still is.

At Marsh Risk Consulting, we think

about our clients businesses

according to their strategic objectives

and the critical processes that

underpin these, and concentrate on

building resilience around these.

Global methodology. Wherever your business trades in the world, you can

be assured of the same approach to

BCM advice from Marsh Risk Consulting. International clients can

build global strategies and plans, safe

in the knowledge that they are joined

up and make best use of available

resources.

Defining industry best practice. our people are not just leaders in

providing BCM advice. they have helped to develop some of the

business continuity industrys

defining standards, including the

British standard for BCM, Bs 25999.

Linkages to risk and insurance. At Marsh Risk Consulting we encourage

our clients to think about risk in its

widest sense. investment in BCM may well have the potential to deliver

value to a corporate risk management

programme, or to improve the cost or

terms of insurance. We have the skills

and oversight to manage such

considerations for our clients.

key featuRes of ouR BCM adviCe inClude;


ouR seRviCes

CapaBility Reviews:

Through formal reviews, we help clients to

correlate their BCM requirements with the availability and quality of their plans. This can

include an assessment of policies and protocols

at group level, including group standards and

frameworks, risk registers and crisis

management plans, as well as an assessment of

BCM implemented at operating company level. Where there are gaps, we help clients to define

what success might look like, and develop

realistic implementation plans to improve their

performance going forward. These solutions

typically include exercising plans at all levels.

exeRCising:

Marsh Risk Consultings range of exercising

solutions are focused on evolving business

continuity plans into business continuity cultures,

through training for senior executives, rehearsing

of emergency response and crisis management

procedures and testing of recovery plans.

plan Building:

We assist clients in identifying and analysing their

key business processes, and developing and

enhancing their business continuity whatever

their current levels of sophistication. A common

approach underpins this process, but plans

themselves are designed around our clients, to

ensure maximum usage and value for them.

pRogRaMMe ManageMent:

With the help of Marsh Risk Consulting, clients

develop their existing plans into programmes of

continuous BCM improvement, based on a framework linked to improving levels of

resilience. We can help to facilitate this process

on their behalf, ensuring consistency of

approach and freeing up valuable project

management resource. our people are also skilled and experienced in winning the hearts

and minds of senior managers, a vital

component of a successful BCM programme.

CRisis ManageMent planning:

Marsh Risk Consulting regularly assists clients in

developing crisis management plans, and

training staff expected to be at the apex of a crisis

with the appropriate skills to manage multiple

stakeholders under pressurised conditions.

supply CHain ResilienCe:

A business continuity strategy that ignores

relationships with key suppliers is unlikely to

work in practice, since many principal exposures

exist outside of a companys own infrastructure

or direct control. Marsh Risk Consulting helps

clients to understand the role that suppliers play

in critical business processes, to identify the

risks and key impact points, and to build

protection around them.

supply chain resilience often forms an element of our programme management approach, as

clients broaden their definition of continuity to

involve external stakeholders.

For smaller businesses that are new to business

continuity, or require less complex solutions to their

needs, Marsh Risk Consulting has a full range of

tailored services intended to assist them in

reviewing, exercising and implementing their plans.

pRoduCt Risk ManageMent:

Marsh Risk Consulting can help clients to identify

and manage the product-related risks within their

operations. We assist clients to make safer

products, reduce the likelihood and severity of

major product risk events, ensure regulatory

compliance, conduct effective recalls and

ultimately protect both clients and their brands.


maRsh Risk consulting pRovides advice to clients aRound a Range of coRe Bcm solutions.


a national petRoleuM CoMpany

Need:

develop a company-wide framework of BCM, including recovery plans for the most critical

areas of the business.

Marsh solutions:

1. designed and implemented an organisation-wide BCM policy and framework, in line with

Bs 25999.

2. developed impact and risk analyses of critical business

areas, designed recovery

strategies and produced business

recovery plans, linked to existing

emergency response plans.

3. facilitated initial plan testing.

our client is an oil and gas production and refining company in the Middle East. It provides petroleum

(domestic, manufacturing, motor and aviation) fuel products. The company also exports refined

petroleum product around the world by sea.

The company embarked upon a programme of risk

identification and, in conjunction with its insurers,

identified the lack of business continuity planning as a

risk to its business. In particular, this study identified a

number of critical refinery operational areas where this

risk was extremely high. Marsh Risk Consulting was

appointed to design and implement a BCM framework across the business.

Marsh Risk Consultings BCM consultants and refinery engineering specialists worked together to

analyse the processes, impacts, risks and in-scope

production activities. The output helped the

company to understand its business better, and

which ultimately led to fit for purpose and robust

recovery plans for the critical production areas of its

refinery operations.

Case studies


our client is a major international sporting and music entertainment presenter and the owner of a number

of international sports and entertainment venues.

our client identified a requirement to become an industry leader in best practice and implementation

of BCM. Marsh Risk Consulting originally worked with our client to assess its BCM and identified the need to upgrade the existing incident management

and business recovery capabilities to complement

the high standard of emergency response

capabilities that had already been developed. A

programme was therefore developed to roll out BCM throughout the business at a flagship site with the

aim of then using this approach as a model for the

further rollout of BCM to the organisations other venues and associated operations.

These plans have been shown to be effective, helping

our client to deal with a number of serious incidents

that have occurred since the plans were developed.

Marsh Risk Consulting continues to work with this

client, to assist the organisations management to gain

the associated benefits from its investments in BCM.

MajoR inteRnational spoRts and enteRtainMent gRoup

Need:

develop comprehensive BCM, including recovery plans for the most

critical areas of the business at one of

the organisations flagship sites.

Marsh solutions:

1. designed and implemented a BCM policy and framework, in line with Bs 25999.

2. developed impact and risk analyses of critical business

areas, designed recovery

strategies and produced

business recovery and crisis

management plans, linked to

the emergency response plans.

3. delivered rehearsal exercises to senior management.


Case studies Continued...

ftse 250 defenCe and aeRospaCe eleCtRoniCs gRoup

need:

develop a company-wide framework of BCM, including group-level crisis management and business unit business continuity plans (BCps).

Marsh solutions:

1. implemented a standardised approach to developing BCps at each business unit within the group, as well as creating a crisis

management plan at group level.

the group is a global engineering organisation specialising in extreme environment components and smart sub-systems for

aerospace, defence and energy markets.

When reviewing the groups overall risk management

programme in 2002, it was identified that there was no standard approach to BCM. this was mainly due to multiple acquisitions that had been made over preceding years. To meet best practice

in corporate governance, it was agreed that a review of existing

BCM requirements was necessary, with any identified gaps to be addressed.

after reviewing BCps at multiple operations globally, a lack of both consistency and quality was identified. A programme was therefore

developed and rolled out in 2003. this programme has assisted over 30 business units to implement BCM successfully, and is consistently highlighted in the groups annual report. These plans

have been shown to be effective, most notably through responding

to the Buncefield fire and explosion in december 2005, as well as being implemented for other less serious interruptions such as a

tornado in texas and a furnace fire in ohio.

Marsh Risk Consulting continues to work with this client, ensuring

newly acquired business units go through the standard BCM programme, as well as carrying out ad-hoc sample audits and

crisis management exercises with the more mature business units.


marsh Risk consultings global business continuity practice comprises over one hundred fully-employed professionals across five continents.

Marsh Risk Consultings global business continuity

practice comprises over one hundred fully-employed

professionals across five continents. Experience within

this team stretches across public, industrial and

commercial sectors, and all verticals.

We assist our clients in developing, implementing and

enhancing business continuity and operational resilience

capabilities. our portfolio of expertise includes incident management, business/operational recovery and crisis

management solutions as well as a deep understanding of

risk issues around supply chain, product recall, information

technology and communications.

our clients range from small privately-owned companies to some of the worlds largest multinational

organisations.

Marsh Risk Consulting is a thought and industry leader in

risk management and has been voted winner of the

excellence in Business Continuity in the insurance industry category at the Business Continuity awards five out of the last six years.

aBout MaRsH Risk Consulting

for more information, please contact:

Rod RatsMaHead of Business Continuity and Resilience eMeia, Marsh Risk Consulting+44 (0) 1908 [email protected]


in the united kingdom, Marsh ltd. is authorised and regulated by the financial services authority for insurance mediation activities only.

Copyright 2013 Marsh ltd all rights reserved

gRapHiCs no. 11-0071

Forensic Accounting And clAims servicesBusiness interruption insurAnce review

The potential loss from BI is often far greater than the loss

from associated property damage. The revenue of a

business will vary from year to year depending on

business performance, growth, external factors and the

competitive environment. In the current fast changing

business climate it is vital to consider how such changes

could impact the organisations exposure to revenue loss.

If the business structure has changed due to acquisitions,

significant organic growth, outsourcing or contractual

arrangements, we would recommend a review of the

insurance policy to ensure limits/coverage extensions are

still appropriate. A review of the organisations individual

exposures and recent business changes would be

performed to identify the impact on policy limits and BI

extension clauses to maximise the benefit of coverage.

IdenTIfy The key componenTssetting up an effective BI insurance programme requires

an in-depth risk assessment of both operational and

financial dimensions of a business. The outcome of the

assessment determines the breadth and basis of cover,

the BI sum insured, indemnity periods and essential cover

extensions. other components that need to be considered

include supply chain interdependencies, redundant

capacity, changing customer demands and market trends.

The fAcs team at marsh Risk consulting provides

clients with a complete BI Insurance review service.

The in-house expertise at the clients disposal includes

forensic accountants and former loss adjusters who

have worked for insurers in the recent past. We

examine all key facets of the BI insurance programme

to ensure that our clients have a clear understanding of

the BI exposures that they may face and can prepare an

effective BI presentation for the insurance markets.

ouR AppRoAchour review will identify amendments required to

coverage and provide a greater understanding of the

real risk to the organisation. highlighting how business

continuity and disaster recovery plans will mitigate any

loss ensures an accurate presentation of the risk to

underwriters and may result in premium savings.

A key element is the level of the sum insured. our

forensic accountants will consider trends and seasonality

to ensure an accurate figure and also avoid penalties and

premium leakage by purchasing too high a level of

coverage.

Business interruption (BI) insurance provides compensation when an insurable event prevents a business from achieving its financial targets, so that it suffers a loss. When combined with an effective business continuity management programme, properly structured BI insurance is a cost effective solution that goes a long way to mitigating the effects of a major business disruption.


In the united kingdom, marsh Ltd. is authorised and regulated by the financial services Authority for insurance mediation activities only.

copyright 2013 marsh Ltd All rights reserved

GRAphIcs no. 11-0173

WoRkInG WITh mARsh RIsk consuLTInGmarsh Risk consulting has a unique insight into BI insurance based on our

first hand experience. Globally, marsh Risk consulting provides BI analysis

and claims consultancy for companies in all industry sectors. We bring an

unparalleled combination of insurance, accounting, engineering, business

continuity and supply chain skills to the task. The fAcs team comprises

insurance professionals who deal with major BI losses following explosions,

hurricanes and major fires. using this real experience of dealing with claims,

they consider the effect of a significant loss to test the coverage pre event.

With the assistance of business continuity and property damage experts, the

marsh Risk consulting approach is unrivalled in its practical approach to

business interruption.

ouR BI InsuRAnce RevIeW IncLudes

Direct BI analysisWe examine loss of revenue/insurable gross

profit due to an insured event at an

organisations own premises or facility. It

includes assessments of maximum

foreseeable loss (mfL), normal loss

estimate (nLe) taking into account all

mitigating actions, indemnity periods and

sums insured.

Contingent BI reviewWe identify and consider

the risk exposures from

damage at the premises

and facilities of suppliers,

customers or utility

organisations.

BI interdependency reviewWe assess the organisations overall BI loss

potential taking into consideration its

interdependent operating sites and shared

facilities. We draw out the significant

exposures and quantify risk accumulations.

BI insuranceWe review existing cover

and make

recommendations for BI

insurance programme

design.

MARSH

MARSH DISASTER RECOVERY PORTAL

sub-nomenclature

Bowring marshs global property team comprises a team of over 70 dedicated brokers. We work alongside our marsh colleagues to advise clients on the optimum placement strategy for their property risks around the world.

Our key industries

financial institutions

food and beverage

hospitality and gaming

manufacturing

mining and metals

power and utilities

real estate

retail/wholesale

technology, media and telecoms

transportation (including rail)

We have a team of claims

consultants who are

responsible for coordinating

and collecting complex

claims. Both of these teams

work alongside the specialist

account broker to ensure the

client is receiving efficient

and accurate service at every

stage of the claim.

GLoBaL ProPertY

gloBAl property risKs

our brokers offer a collective

in-depth knowledge and experience

of global risk managed accounts for

companies. We also specialise in

providing natural catastrophe

solutions.

our clients benefit from our broad

understanding of evolving business

risks around the world and our

ability to provide detailed advice

regarding applicable lines of

coverage. We also work closely with

clients to address individual

challenges as they arise to

customize innovative property

solutions to suit their needs.

Wording specialists within the team

craft tailored policy clauses required

by large clients with sophisticated

business needs.

creAtiNg vAlue With volume

globally, we place total premiums of

over usd1.2 billion into the

international marketplace on behalf

of over 560 clients.

in london alone we access over 40

lloyds syndicates and companies

with whom we negotiate the

optimum terms and conditions for

our clients on a face-to-face basis.

Bowring marsh has the largest

fortune 100 portfolio in the

marketplace, reflecting our

expertise in providing complex,

global solutions.

North AmericAN property fAcilities

For more inFormation contact:BermudA

tom cechiNiproperty department managere: [email protected]: +1 441 299 8848

hoNg KoNg

sANdy Ngclient managere: [email protected]: +852 2301 7677

loNdoN

toNy WAllerinternational propertyplacement leadere: [email protected]: +44 20 7357 3473

tom dAviesNorth American propertyplacement leadere: [email protected]: +44 20 7357 1030

miAmi

fABio mAgAlhAeshead of officee: [email protected]: +1 305 341 5067

BrAzil

dAvid peAsenior property Brokere: [email protected]: +55 113 741 7728

siNgApore

miN ByuNg WANproperty placement Brokere: [email protected]: +65 6327 3321

toKyo

tetsuro NAKAzAWAhead of Bowring marsh Japane: [email protected]: +81 3 5334 8218

zrich

chris mcmANimoNsenior property Brokere: [email protected]: +41 44 285 9324

NAthAlAy hAusseNerproperty Brokere: [email protected]: +41 44 285 9363

ABout BoWriNg mArsh

Bowring marsh is the exclusive, specialist international placement broker for

marsh. Working seamlessly with marsh, Bowring marsh provides access for

clients, wherever they are in the world, to international insurers through its

global insurance placement platform.

BoWriNg mArsh offices

With over 260 insurance brokers located across all the major international

insurance hubs, we provide customers with options in the international markets,

driving price and coverage by putting international and domestic insurers into

competition against each other and by differentiating our customers risks,

whether they are strategic insurance buyers, claims-distressed, exposed to natural

catastrophe or buy large limits due to the nature of their operations.

placing in excess of usd2.2 billion of premium for more than 1,500 customers

annually, Bowring marsh uses the breadth and depth of its portfolio experience

and industry knowledge to innovate, customize, and broker our clients insurance

contracts with international insurers.

the information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. the information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

in the united Kingdom, marsh ltd. is authorised and regulated by the financial services Authority for insurance mediation activities only.

copyright 2011 marsh ltd. All rights reserved.ref: Bm.pfs.12

New York

Miami

Bermuda

Dublin

London

Zrich

So Paulo

Dubai

Singapore

Hong KongShanghai

Tokyo

Beijing

Madrid

Bowring Marsh Oces

Bowring Marsh Representatives

in addition to our tailored open

market placements for North

American clients, we offer three

facilities and also write deductible

buy downs.

Bowring marsh provides up to usd75 million of capacity with a

usd25 million excess attachment

for National Brokerage accounts.

lancashire insurance company

limited provides this products

security exclusively to our Bowring

marsh property team in Bermuda.

Xl 450 provides usd450 million of capacity with a usd50 million

excess attachment lloyds

security and london companies.

public entity specialises in municipalities. these facilities can

be activated within 48 hours

lloyds security.

Global Claims Practice

Lessons Learned from the Catastrophes of 2011the marsh point of View

i Lessons Learned from the Catastrophes of 2011

Foreword

i Lessons Learned from the Catastrophes of 2011

Lessons and RegeneRation

2011 has been characterized as the Year of the Cat. While it may not have been the largest Cat year on record, it was truly an exceptional one in terms of frequency, severity, and proliferation of issues arising from floods, windstorms, earthquakes and other disasters.

First and foremost, we recognize the human tragedy caused by such catastrophic events. indeed, we are sad to say we lost three Marsh colleagues in the Christchurch earthquake.

in the aftermath of catastrophic events, one of our roles is to help facilitate and provide the means for recovery. While not all damage and economic losses are insured, there is still a significant insurance and risk management response to the events of 2011. Catastrophes provide the insurance industry with a profound opportunity to demonstrate its value and its important role in the process of regeneration. along the way, we have all taken on important lessons that merit closer examination and sharing.

the aim of this document is to chronicle the salient issues and suggest ways in which we can deal with them better in the future. Marshs global presence makes us well positioned to analyze the catastrophes, identify individual lessons, and perhaps observe some general themes that characterize them all.

i hope you find this study to be stimulating, but it cannot be exhaustive. We are fortunate to be in an industry that is dynamic, and we will all undoubtedly encounter new challenges and opportunities. Lessons will always continue to be learned.

david Pigot

Chairman, global Claims Practice

Listening, LeaRning and deLiveRing

the magnitude and impact of the catastrophic events of 2011 were truly extraordinary. While many of the risks were understood, the scale of the devastation was unexpected, exceeding existing loss-modeling predictions. indeed, the complexity and cascade of the events in Japan show that even our understanding of the nature of risk was challenged in terms of multiple and concurrent causation.

Many of our clients were severely impacted by the catastrophes. our Claims colleagues worked tirelessly on their behalf, and i am so proud and impressed by their efforts, as well as the resilience of our clients in the face of such adversity.

in addition to addressing the immediate needs of clients affected by disasters, Marshs global resources and claims expertise equip it exceptionally well to draw and share lessons from such catastrophes. We share our perspective on what worked and where we consider the response to have fallen short.

in this way, we believe we can contribute significantly to improved preparation for enhanced resiliency during, and speedier recovery from, future catastrophic events. We look forward to engaging in a constructive dialogue with our clients and insurance partners on these issues. our mission is to learn, challenge and then shape enhanced solutions. We welcome and encourage our clients active participation in this process.

We will continue to drive leading edge insurance and risk products by listening, learning and delivering. this document is a step along that journey, and i look forward to discussing with you the issues and observations presented here.

david BatCheLoR

President, international division

Marsh 1

Contents

Case studies

denial of access ...................................................................................................... 2

strike, Riot and Civil Commotion or terrorism? ....................................................... 4

Flood versus storm ................................................................................................. 6

Contingent Business interruption Resulting From supply Chain Failure .................. 8

72 hours Clause ................................................................................................... 10

ContaCts ....................................................................................................... 12

2 Lessons Learned from the Catastrophes of 2011

BaCkgRound

Business interruption (Bi) insurance policies typically respond to loss due to insured damage at the insureds property. Contingent Bi extends to the property of others, but the nature of the damage must be of a type covered by the insureds policy.

a further extension includes cover for Bi due to prevention or denial of access to the insureds property. this is valuable, as a business may not be able to trade if a building or district has to be cordoned off, or if access to it is hindered due to factors such as:

a fire or some other peril (such as flood, earthquake)

a police or medical emergency

the outbreak of an infectious human or animal disease (for example, foot-and-mouth disease)

a hazardous material spill

the specific language of denial of access clauses will vary, but here is an example:

deniaL oF aCCessLoss, as insured by this Policy and resulting from damage or threat of damage to any property in the vicinity of the Premises, or from any threat to human life, that prevents or hinders the use of or access to the Premises, will be deemed to be loss resulting from damage to property used by the insured at the Premises for the purpose of the Business.

1 author of the 9th edition: harry Roberts

Cover for denial of access may be sub-limited to a currency amount, or to a percentage (e.g. 5 or 10 percent of the limit of the Bi section). often, there is a deductible or waiting period of a number of hours or days, so that loss due to short-term denial of access is not insured.

in fact, denial of access has historically been regarded as a relatively short-term phenomenon, and the classic Bi text Riley on Business Interruption Insurance1 refers to closure of a street in Liverpool, england for 10 days in 1960.

however, not all denial of access is short-term. Recent catastrophes in new Zealand and thailand have featured longer term issues, and this raises questions about the appropriateness of typical denial of access cover.

deniaL oF aCCess

issue

how is denial of access treated by insurers when it lasts for weeks, months or even years?

Marsh 3

Case studY ChRistChuRCh eaRthquake FeBRuaRY 2011

in the Central Business district (CBd) of Christchurch, new Zealand, a sizeable cordon remains in place more than a year since the magnitude 6.3 earthquake of 22 February 2011. the cordon may not be lifted until april 2012, or even later.

around 1,000 buildings in the CBd are expected to be demolished. With so many unsafe buildings, and with the threat of continuing aftershocks, the public is not permitted entry to the CBd. access is by permit only and guarded by the armed forces.

there are shopping malls, hotels, and businesses within the cordon, and a further complication with denial of access is the argument that these businesses would have been unable to operate even if they had suffered no damage at all.

a similar situation occurred in new orleans in 2005, where an orient express hotel (oeh) was damaged by hurricanes Rita and katrina. this was subsequently the subject of litigation and it was decided that even if the hotel had not been damaged, it would have suffered the same business interruption loss because of the devastation to the surrounding area.

this is what has become known as the windfall loss scenario.

there might have been a different outcome if the test was but for the event as opposed to but for the damage. the main issue, however, was how the policy should respond to the situation where both damage to the hotel and damage to the wider area were causes of the Bi loss. a recovery was made for Bi losses under the denial of access cover, but this was sub-limited (unlike that available under the overall Bi cover).

While the oeh case continues to attract controversy, it serves as a good example of how clients should consider denial of access in the context of the available Bi cover.

it remains to be seen how the new Zealand courts will interpret this issue, but it has greater relevance if there is a sub-limit for denial of access.

Lessons LeaRned

1. Check the policy test with regard to Bi being but for the damage or but for the event.

2. Check the policy for the adequacy of denial of access sub-limits, and/or their aggregation. an extended period whereby access is denied (as seen in Christchurch and thailand) can expose any limitation.

3. it is very helpful if the denial of access extension covers not just denial of access but hindrance as well. Business can suffer if a location is difficult or highly inconvenient to get to, just as much as if access was physically impossible.

4. By the same token, there may be an interruption to the business caused by threat (e.g., scared to gain entry) or simple impracticality (e.g., there may be access to an airport, but there may be no planes). this was a significant issue following 9/11 when businesses at airports claimed Bi losses due to the closure of all airspace to commercial flights; and hotels and other hospitality and travel related businesses claimed for losses due to sharp reductions in travel.

5. Controversy can also arise regarding what constitutes a coverage trigger. several insurers have asserted, for instance, that the presence of floodwaters on access roads or grounds does not constitute physical damage. they have said that flood damage to buildings, structures or other property must first take place (as seen in the blizzards of 2010 in the eastern united states, where roads were impassable due to heavy snowfall).

these observations are general and not policy or circumstance specific. it is recommended that you consult with your advisors before considering action in presenting and pursuing a claim.

dated: March 2012

4 Lessons Learned from the Catastrophes of 2011

BaCkgRound

all Risks policies will typically exclude terrorism. separate terrorism cover or broader Political violence cover may be available, but this does not necessarily provide certainty. the definition of terrorism as excluded may not be the same as the definition of terrorism as extended.

in addition to recoveries potentially available from insurance, care must be taken to recognize and act upon any local legislation and related requirements, so as to preserve any other form of recovery. For example, following the uk riots of august 2011, the Riot (damages) act 1886 required policyholders to register their claim for compensation from police authorities within a set timeframe (originally fourteen days), and by using a prescribed form. Failure to do so could preclude recovery under the act.

another common issue in civil unrest situations concerns the number of events and the potential application of multiple deductibles. there may be a 72 hours Clause in the policy, and the definition of an event is important, although not all policies contain a specific definition.

the situation in egypt in the early part of 2011 allows us to illustrate the sRCC versus terrorism

issue.

stRike, Riot and CiviL CoMMotion oR teRRoRisM?

issue

the 2011 public disturbances in egypt, the uk and elsewhere have re-ignited the debate that came to prominence in the 2010 thailand disturbances; namely, what constitutes strike, Riot and Civil Commotion (sRCC), and what constitutes terrorism?

Marsh 5

Case studY egYPt unRest JanuaRY 2011

the events in egypt began on 25 January 2011 and have variously been described as non-violent civil resistance, civil disobedience, popular uprising, revolution, and terrorism. these terms are frequently used generally and without appreciation of any insurance policy implications. however, the interpretation of these terms can have a significant impact on policy response.

the unrest is generally considered to have ended when President Mubarak stepped down on 11 February 2011.

there was much confusion regarding the definition of the events and the related insurance implications. the insurance Federation of egypt provided some clarification when it issued a statement on 8 March 2011, that concluded

Accordingly, the Federation recommends that the insurance companies should consider the claims submitted to them as per the conditions, terms, limits of coverage and exclusions of insurance policies signed with the insured in connection with the coverage of Riot, Civil Commotion and Strike Perils.

this statement prompted a flow of payments from insurers, but some claims continued to be contested for a variety of reasons, including:

the non-binding nature of the Federations statement (although it was clearly influential)

the variety of language in insurance clauses, some of which exclude civil commotion assuming the proportions of a popular rising, which introduces an additional requirement of scale

the broad definition of terrorism as stated in some policies, which might embrace activity beyond the popularly understood meaning of the word terrorism

insurer portfolio consideration, being a concern that precedent is not established for greater exposures in other territories, such as thailand

Lessons LeaRned

1. Pre-loss, compare exclusionary and inclusionary terrorism language, to check that the coverage dovetails. also consider what other coverage might be available.

2. Capture claims data and evidence of the business decisions made during and subsequent to the unrest. Close co-operati

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