Businesses like those in Big Sur, cut
off by failures of critical infrastructure,
have few insurance options to help
them recover their losses. Traditional
business interruption (BI) coverages
stipulate the covered property must
incur some physical loss or damage.
Contingent BI policies are only
triggered if the insured’s suppliers
incur such damage. So what happens
when there’s no physical loss to a
property or any of its supply partners?
“The market struggles with
non-damage business interruption,”
said Rich Clark, managing director,
Gallagher’s hospitality practice.
“Standard ISO-based policy
wording would not provide coverage
for this type of scenario regardless
of the cause of the loss to critical
infrastructure,” said Brendan Osean,
principal, EPIC Insurance Brokers &
Consultants. “But if they have broader
manuscript policy wording, there may
Ultimately there are three potential
solutions — ingress/egress, civil
authority and parametric policies — but
each comes with its own limitations.
Ingress/egress and civil authority
coverages may offer indemnity for
non-damage business interruption
losses, but only if the cause of the loss
is specifically covered. For example, a
hotel may experience a loss of business
if a flood washes out the road to their
property. But if they aren’t located in
a flood zone, and flood is not a named
peril under their ingress/egress policy,
then there would be no coverage.
Same goes if the cause of loss to a
piece of critical infrastructure is simple
deterioration. Gradual wear-and-tear is
not considered a covered cause of loss,
so if a bridge or tunnel collapses simply
due to its age, any affected business
could not recover from an ingress/
Insured perils could include
earthquake, windstorm, heavy snow,
rainfall, hurricane or flood, depending
on the location.
“Even if an ingress/egress policy
is triggered by an insured peril, these
policies typically only offer coverage
for 30 to 90 days of interruption. If
you’re dealing with a total bridge or
tunnel collapse, it’s likely to be longer
than that,” Clark said.
Similar exclusions apply to civil
authority policies. These cover
instances where a government
authority shuts down a roadway
or transportation system due to an
imminent safety threat. Again, that
safety threat must be an insured peril
and must actually come to fruition in
order for the coverage to respond.
Both types of coverage may also
impose mileage limitations. The loss
to infrastructure would have to occur
within a designated radius from the
“We most commonly see 5- or 10-
mile limits, sometimes up to 25 miles,”
Clark said, “but there is no standard.”
Greg Schiffer, global head,
engineering, Swiss Re, said neither
ingress/egress nor civil authority
coverages were designed to address
exposure related to loss of critical
“These policies are usually sub-
limited, and they have waiting periods
and time limits. They were not
designed for this type of loss, and
any recovery from them would be
indirect or unintended,” he said. “They
might respond to a loss caused by a
natural peril, but when it comes to
infrastructure, lack of maintenance is a
bigger issue, and lack of maintenance is
not a covered cause of loss.”
Parametrics, a relative marketplace
newcomer, offers a third option.
“Parametric coverage triggers are
not indemnity-based, so they aren’t
based on an individual client’s actual
loss. If you hit the coverage triggers,
you get the payout,” EPIC’s Osean said.
Most parametric coverages are
built around weather events. Typical
triggers would include a certain wind
speed sustained or inches of rainfall
over a designated period of time, an
earthquake of a certain magnitude, or
extreme temperature changes.
“Depending on your risk tolerance,
you could manuscript wording to
apply these triggers to a radius around
your property that includes a critical
piece of infrastructure,” Pellen said.
If severe weather meeting the policy
parameters causes a road or bridge to
number of small coastal islands to see
how infrastructure failure cuts off the
livelihood of an entire town.
But these aren’t Black Swan
events — it is possible to plan for
them. And as increasingly unforgiving
weather weakens already-vulnerable
infrastructure, there’s no time like the
Risk managers should consider their
dependency on critical infrastructure
as part of a risk analysis. Having only
one way in or out, for example, should
spark some concern. How reliable
or exposed is that route? A probable
maximum loss study should consider
all peril-related losses, including
losses related to neighboring assets.
Simulations can estimate the likelihood
and extent of a loss.
“It requires the recognition on the
part of the organization that this could
happen, and putting thought into how
it will respond if it does happen,” said
Jill Dalton, managing director, Aon
“Analyze your coverages and
see what’s excluded and how you
might be able to get more of the
exposure covered. Manuscript forms
or endorsements can give you more
options,” Osean said.
“You can determine your exposure
and what your appetite for that is.
There may not be off-the-shelf
solutions, but brokers certainly are
capable of bringing some solutions to
the table if they have the foresight to
ask the right questions,” Crystal said. &
KATIE DWYER is an associate editor with
Risk & Insurance®. She can be reached at
become impassable — as in the case of
Big Sur — the insured property still
receives the payout, even if it sustained
no physical damage itself.
“You can define the payout in line
with what your anticipated business
interruption losses would be,” Pellen said.
Some airports, he said, are already
using parametric solutions this way.
With finite budgets for maintenance,
snow removal and salting, airports
have used payouts from parametric
coverages to supplement those funds
and help with cleanup after a storm
— even if the airport sustained no
significant physical damage.
As with ingress/egress and civil
authority policies, however, gradual
deterioration would not trigger any
coverage. There’s also the possibility
that a storm will cause damage to critical
infrastructure — and a subsequent
business interruption loss — without
hitting the triggers set by the policy.
Parametric products may also be
too pricey for some. Osean said they
come with frictional expenses and
“may not be economical for mid-size
organizations.” But Jamie Crystal,
EVP, Crystal & Company, disagreed.
“As opposed to buying a year’s
worth of BI insurance, you may only
need this cover for a few weeks. If
you’re buying a million dollars’ worth
of insurance at a 4 percent rate, that’s
still only $40,000. And you might not
need more than $1 million,” he said.
“To me, it’s a very viable and cost-effective way to protect a company
from loss to critical infrastructure.”
RISK MITIGATION STRATEGIES
Plenty of examples from the
CAT-heavy year of 2017 show this
risk is real. One only has to look to
California, the Florida Keys or any
American Society of Civil Engineers, 2017 Infrastructure Report Card