The greater the regulation, the greater the risk
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Business interruption (BI) is widely feared in the corporate world. It also comes in many forms, such as cyber-attack, terrorism or natural disaster. Furthermore, the BI risk landscape is always changing in line with the broader operating environment.
In today's business world, regulatory risk (a regulator's withdrawal of the operating licence) is growing significantly. This mirrors the widespread increase in regulation. Companies face more responsibility to meet regulatory standards than ever before. As a result, regulatory censure has evolved into a bona fide source of business interruption.
Companies should acknowledge this hazard and incorporate it into their risk management planning. In fact, a hospital group recently approached Swiss Re Corporate Solutions to inquire about insurance for regulatory risk. The group operates a number of sterilisation centres and was concerned about the regulatory closure of one or more of these centres.
The company in question depends on sterilisation to perform surgical procedures (its main source of income). The closure of its sterilisation units is therefore a serious issue. Furthermore, as sterile instruments can mean the difference between life and death, a mere suspicion of inadequate hygiene could prompt regulatory closure.
Swiss Re Corporate Solutions had to pioneer a targeted, standalone policy in this case, as conventional BI cover normally comes under property insurance and, as such, would not be applicable to the actual risk the client was concerned about.
We had to design a policy that would compensate the lost revenue and be triggered by regulatory risk. We were able to do that by modelling the risk exposure and translating it into a fixed insured amount per day and per unit closed.
The innovative aspect of our policy is the clever way it combines aspects of casualty and property insurance to focus on regulatory risk. The insurance payout is triggered by forced closure (casualty) whereas the payment is to compensate for business interruption (property).
In effect, we worked across these two traditional insurance categories to design a policy tailored to the needs of our client. That’s how we add value: by using our expertise to structure risk solutions fit for a changing business environment.