Beware of business interruption goblins

Underwriters need to beware of seemingly “harmless” business interruption (BI) coverages such as for interdependent and contingent losses, power outages and the financial consequences of prevented access that could accumulate into a big payout should a claim occur, Swiss Re warns.In its report, The Vitzliputzlis of Business Interruption Insurance, Swiss Re says a Vitzliputzlis is a manifestation sometimes a quirky, harmless stage ghost in plays or mischievous hobgoblins at Halloween that appears to be harmless, but will seek revenge on anyone who mistreats them. Similarly, many supplementary covers with potential side effects have crept into BI policies.Such stand-alone or supplementary insurances are sometimes seriously underestimated in three ways: in premium calculations; in the analysis of the cumulative risk potential; and loss assessment and claims settlement, the report said.Some of the most “severely underestimated vitzliputzlis” include:Business interruption following damage at customers and suppliers;Covers following power outages or other utility failure;Impaired attractiveness of the location; and Shutdown or restriction of operations due to losses other than property damage.If the recognized rules of best-practice underwriting are applied and followed, generally viable solutions can be found, the report said.”However if no reasonable insurance solution can be found, other means of risk distribution, such as securitisation may safeguard the client’s jeopardised income.”