Last year’s major catastrophes have triggered a review by the Lloyd’s Market Association (LMA) of the way in which Contingent Business Interruption (CBI) cover is written in the Lloyd’s market.
CBI insurance reimburses the insured for lost profits and additional expenses which arise from an interruption of business at the premises of a supplier or customer. The review is examining the quality of data held by the market on contingent BI risks and how underwriters monitor their aggregations and exposures in this area.
A series of catastrophic events including the Japanese earthquake and tsunami, and flooding in Thailand have highlighted for Lloyd’s syndicates writing CBI the importance of properly understanding the complex supply chain elements inherent in their clients’ businesses.
As contemporary supply chain models tend to be based on ‘just in time’ methodologies – timing deliveries precisely when needed rather than stockpiling goods – the knock-on effects of disruption to suppliers’ businesses can be greater and more complex than in previous decades. Additionally, supply chains have grown increasingly global in nature, meaning that a catastrophe in one part of the world can affect businesses in many other regions.
Following the initial review, the LMA's Worldwide Property Panel has drawn up a model Suppliers and Customers Questionnaire. The questionnaire, which is designed to provide a practical document focusing on key aspects of supply chain management, consists of 12 questions to be completed by existing and prospective insureds.
Neil Smith, head of underwriting for the LMA, said: “What we’re trying to do is help contingent BI insurers to understand their exposures better by producing a model questionnaire that clients can complete at the point of inception to ensure underwriters get the information they need.”
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