April 13, 2011
- Analysis by: GLG Expert Contributor
Regarding insurance and reinsurance, a neglected area in public discussions so far is Business Interruption and Contingent Business Interruption.
GM’s notification of contingent business interruption regarding their assembly plant in Shreveport is the first of many to come.
Regarding Japan and the Tohoku Earthquake, the coverages for losses caused by the earthquake shock, tsunami and nuclear radiation are well defined and a vast majority of damages will be paid by the Japanese taxpayer.
There is a different picture in the insurance and reinsurance world when looking at international companies’ Business Interruption and Contingent Business Interruption following earthquake, tsunami and nuclear radiation.
- Japanese suppliers cannot deliver goods due to roads that have been blocked.
- Port facilities are not functioning and ships cannot be loaded.
- Containers at ports have been washed away.
- Electricity cuts at production plants.
- Employees couldn’t show up for work.
All the above might have halted the production of goods or stopped their on-time delivery to other manufacturers. These manufacturers in other countries regularly buy insurance coverage against interruption in their supply chain. There might be waiting periods (typically 7 to 30 days) before any insurance cover kicks in and there are some exclusions and sublimits. However, many insurance companies will be receiving notifications from insured industrial clients soon.
One example has made the news recently: General Motors has notified insurers regarding their Contingent Business Interruption cover for their assembly plant in Shreveport, Louisiana (USA). Whether the insured amount here will ultimately be the USD 1 billion quoted in the press remains to be seen.
Certainly, we will see other manufacturers making similar noises in the insurance and reinsurance market.