FIRE, flood or IT failure may bring down, or at least cause significant problems to, an otherwise financially healthy company. Thus insurance companies believe that even the current economic crisis should not be a reason for entrepreneurs to leave their business uninsured. Insurance companies in Slovakia report increased interest in insurance of assets, but say liability insurance is growing too.
“The crisis should not be a reason for being thrifty on insurance,” Branislav Martinka, director of the corporate clients department at Allianz-Slovenská Poisťovňa (Allianz-SP), said, as quoted in a company press release.
According to Allianz-SP, Slovakia’s biggest insurance firm, Slovak companies recognise that there are risks to their assets in spite of the financial crisis. It says that the huge damage caused by floods over the last few years has contributed to this. Allianz-SP spokesperson Gabriel Tóth added that due to climate change it is very difficult to forecast the behaviour of rivers or the amount of snow that will fall – and what will happen when it thaws. Alternation of these natural extremes with periods of dry weather with an increased risk of fire can also not be neglected.
“The coincidence of these phenomena is gradually increasing the interest of Slovak companies in insurance,” Tóth told The Slovak Spectator.
According to Tóth, several factors affect this interest. Apart from climate change these are directives resulting from new legislation, for example the obligation of companies to secure financial coverage of their liability for possible environmental damages. This has increased companies’ interest in insurance policies covering this risk, as well as interest in general liability insurance. But in spite of this, liability insurance lags behind insurance of assets.
“Slovak companies maybe do not realise the scope of possible damage caused by their operations and thus underestimate liability insurance and focus mostly on insurance of assets,” said Tóth.
Generali Slovensko, another insurer, also records bigger long-term interest from companies in covering their movable as well as immovable assets with insurance against natural risks like fire, flood or windstorms, but says interest in liability insurance is also increasing.
“The common aim of a businessperson and an insurer is to protect the businessperson from such accidental damage, which could to a significant extent affect the operation of his company or may even cause his company existential problems,” Generali Slovensko spokesperson Lucia Makayová told The Slovak Spectator.
The experience of the Uniqa Poisťovňa insurance company is that firms often insure only against damage to their assets, omitting business interruption risk, and do not realise what damage they can cause by their operations.
“Businesspersons very often do not realise what damage they can cause to third parties by their operations and set very low insurance amounts for liability insurance,” Miloš Valko, director of assets and liability insurance at Uniqa, told The Slovak Spectator.
Current top and future risks
The Risk Barometer, a survey by Allianz Global Corporate & Specialty (AGCS), the centre for corporate and industrial insurance at Allianz, carried out in 28 countries in late 2012, puts business interruption, natural catastrophes and fire as the top three risks for companies in 2013. On the other hand, cyber crime and IT failures or power outages remain underestimated.
Allianz risk-management and underwriting professionals ranked business interruption and supply-chain risk as the top risk, with almost half (46 percent) of the responses ranking it as one of the three most important risks for their clients.
The company wrote in a press release in January that with many businesses choosing to run lean supply chains to reduce costs, business interruption at a key supplier can cause a ripple effect that is felt across an entire industry.
It pointed to flooding in Thailand in late 2011 which caused a shortage of hard-drives that impacted PC manufacturers globally, triggering contingent business interruption claims far outside the flood zone itself.
A total of 44 percent of Allianz responses named natural catastrophes as the second-most important corporate risk – a long-running trend that looks set to continue.
The trend is attributed to the increase in insured assets worldwide, as well as the ongoing shift towards settlement in high-risk coastal regions.
Overall, insurance claims caused by weather incidents have risen 15-fold over the past 30 years, the risk barometer report stated.
According to the risk barometer, the risk of fire and explosion has rocketed up the corporate agenda and was named third-most significant risk, compared to tenth just a year ago. Fire and explosion represents an important risk in both established and emerging markets. Losses can be tremendous in terms of physical damage and can also cause a significant business interruption if the affected location is a crucial link in the company’s own network or an important supplier for others.
The experience of Allianz-SP confirms this.
“One of the biggest insurance events for Allianz-SP in 2012 was caused by a fire at a hotel and an administrative building in Revúca,” Martinka said, as quoted in the company’s press release. “The resulting damage was estimated at €900,000.”
The risk barometer suggests that the risks of cyber crime and supra-regional power blackouts are currently being underestimated.
Michael Bruch, the head of R&D risk consulting at AGCS, warned that “if a blackout occurs, the impacts are much higher today than 10 to 15 years ago due to the high dependence on information and communication technologies and the lack of preparedness on the part of businesses”.
