NON-PHYSICAL BUSINESS INTERRUPTION
Hidden Risks of Violence
The Las Vegas
shooting and other
demand for non-physical damage
BI coverages. The
market is growing,
but do new products
meet companies’ new
By Rodrigo Amaral
The changing face of terrorism and the increase in mass shootings expose more insureds to business interruption losses.
Mass shootings in the United States and the emergence of new forms of terrorism in Europe are boosting demand for insurance against losses caused by business interruption when a policyholder suffers no direct property damage, according to insurers. But brokers say coverage for non-physical damage BI (NDBI),
needs to evolve to better meet the emerging needs of corporate clients.
For years, manufacturing clients sought a more comprehensive range of NDBI
coverages, especially due to the indirect effects of natural catastrophes such as the
Thai floods that disrupted global supply chains in 2011.
More recently, however, hospitality and entertainment companies are expressing
interest as they strive to adapt to realities such as the mass shootings in tourism
hotspots Las Vegas and Orlando and terror attacks in such popular destinations as
New York, Paris, Berlin, Barcelona and London.
In addition to loss of life and property, revenue loss is a real risk. Tragedies that
cause a high number of fatalities can cause severe financial losses, especially for
companies relying on tourism, as visitors shy away from crime scenes.
Precedents already exist. Paris received 1.5 million fewer visitors than expected
in 2016, after the French capital was targeted by a series of deadly terror attacks
the year before.
More recently, bookings declined in the immediate aftermath of a shooting at
the Mandalay Bay Resort and Casino in Las Vegas that took the lives of 58 people
on October 1: Bookings at the hotel have since recovered.
“The recent horrific mass shootings in Las Vegas, Nev., and in Sutherland
Springs, Texas, raised awareness and concerns about similar events occurring in
areas where the public congregates, such as entertainment venues like sporting
events, concerts, restaurants, movie theaters, convention centers and more,” said
Bob Nusslein, head of Innovative Risk Solutions Americas, Swiss Re CS.
“The second highest NDBI cover to natural catastrophes is terrorism,
including active shooter and mass shootings.”
However, products available in the market do not always provide the
protection companies would like. Active shooter coverages, for example, focus
mostly on third-party liabilities that policyholders may face after a shooting.
Loss-of-attraction policies often define triggering events with a high degree
of detail. These events may need to be characterized as a terrorist attack or act
of war by authorities. In some cases, access to the venue needs to be officially cut
off by police. It follows that an attack by a 64-year old ex-accountant who shoots
hundreds of people for no apparent reason — as was the case in the Mandalay Bay
tragedy — isn’t likely to align with a typical policy trigger.
But insurers say they are trying to adapt to the evolving realities of both mass
shootings and terrorism to meet the new needs expressed by clients.
“The active shooting coverage is drawing much interest in the U.S. market
right now. In Europe, clients are increasingly inquiring about loss of attraction,”
said Chris Parker, head of terrorism and political violence, Beazley.
“What we are doing at the moment is to try and cross these two kinds of
products, so that a client can get coverage for the loss of attraction resulting from
an active shooting event.”
Loss-of-attraction policies cover
revenue loss derived from catastrophic
events, and underwriters already offer
alternatives that provide coverage, even
when no property damage is involved.
To establish the reach of such a
policy, buyers can define a trigger
radius — a physical area defined in
the policy. If a catastrophic event takes
place within this radius, coverage will
be triggered. This practice is sometimes
called “cat in a box.”
“Capacity is very large for
direct acts of terrorism but
lower for indirect terrorism
and violent acts because the
exposure is far greater.”
— Joey Sylvester, national director of operations
& planning, Public Sector, Gallagher
• New forms of terrorism are
driving interest in BI coverage not
tied to physical damage.
• Parametric solutions are gaining
• Geopolitical tensions are
increasing non-physical BI
exposure for some insureds.