Source: asiainsurancereview.com

With business interruption (BI) insurance claims across Europe being rejected amidst coronavirus lockdowns, the Federation of European Risk Management (FERMA) has called upon the European Commission to create an EU resilience framework for catastrophic risks such as the current pandemic.

The framework will address the severe shortage of BI insurance without physical damage which is referred to as non-physical damage business interruption (NDBI). NDBI is a situation whereby a business is unable to operate normally and faces financial loss despite suffering no physical damage due to circumstances beyond its control. Apart from national pools, there is currently very limited insurance coverage available in Europe for NDBI which is not covered under traditional property damage and BI insurance.

The resilience framework proposed by FERMA would therefore have the flexibility to respond to a range of catastrophic events such as pandemics and massive cyber attacks that can create severe business losses without physical damage. “A resilience framework will support the development of NDBI coverage to give European enterprises the financial security to maintain flexibility in the face of catastrophic events and incentives to apply risk management methodologies,” said FERMA president Dirk Wegener.

The framework would function on four levels:

– Enterprise-level risk management: anticipation, prevention, identification and mitigation of risks

– Transfer of risk to private insurance and reinsurance markets, developing enhanced coverage for NDBI

– National member state pool guarantees

– European Union support for as well as coordination between national governments

“This holistic approach supported by the insurance sector, national governments and EU institutions would ensure that the resilience framework has the capacity to benefit all businesses, from small and medium-sized enterprises facing immediate liquidity issues, to the largest transnational corporations concerned with supply chain and trade disruptions,” said Mr Wegener.

According to him, FERMA now aims to deepen discussions with the EU, the member states and the insurance sector as well as to develop solutions for both short-term crisis management and long-term business resilience. The federation noted that (re)insurance participation is important as insurance can apply clear parameters to give risk-based assessments for contributions from enterprises to the framework funding mechanism. In turn, this would give businesses an incentive to apply risk management methodologies such as enterprise risk management because they would be assessed on their risk management maturity.