Protecting their companies from devastating catastrophes, be they caused by nature or humans, is becoming ever more challenging for C-suite executives around the world.
Traditional business interruption insurance generally covers losses linked to physical property damage. Yet what about non-physical damage – loss of sales revenue, for example – in the aftermath of a catastrophic event? Even more unnerving, what if such an event occurs in one of your most profitable markets?
The savvy risk manager of a public European luxury goods company with key retail outlets in earthquake-prone regions approached Swiss Re Corporate Solutions with these very questions. As a public company, it was especially concerned about the “snowball effect”: the drop in footfall and in-store transactions, interrupted operations depressing sales, strangling liquidity, biting into profit margins, souring investor sentiment and sparking share selloffs … thus leading to further uncertainty, loss of consumer and investor confidence and ultimately, profitability.
Working together, we designed a business interruption solution to cover revenue losses resulting from an earthquake. The cover was parametric-based, which meant it had pre-defined pay-out parameters within pre-defined regions, so the client knew exactly what the cover entailed. Such solutions are flexible, and can cover a range of scenarios, including the extra expenses or loss of incomes arising from an interruption of business at the client’s premises or even at a supplier’s premises.
The result: customised insurance coverage that protects the company’s profitability, ensures access to liquidity and demonstrates effective risk and crisis management to investors.
Parametric insurance is straightforward – payouts are fast and pegged to measurable, pre-defined metrics. Unlike traditional insurance, there is no claim investigation and calculation period, which can be protracted. Once metrics are met and verified, payouts are made within an average of 30 days. This means companies aren’t hamstrung by illiquidity, or damaged by uncertainty, which can be toxic to investors. Simple as that.
Parametric insurance can also serve as a powerful differentiator. Companies with metrics-based liquidity and crisis management solutions inspire additional confidence among stakeholders and investors, providing a competitive edge. Welcome in the best of times, confidence is crucial in times of catastrophe.
Parametric insurance is not meant to replace traditional insurance. It is, however, meant to accelerate speed of payment and with that, simplify how insurance is delivered. Risk managers seeking innovative coverage will discover an award-winning team at Swiss Re Corporate Solutions. Working together, we can design customised parametric protection to stop the snowball in its tracks.
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