PC360-NU: Have the natural catastrophes of the past few years impacted Zurich's appetite for limits or the way you underwrite Contingent Business Interruption coverage?

Conrad: It has impacted the CBI market, not only for Zurich but for all insurers. The drive came from our reinsurers who said, “We'll give you 18 months to start getting more transparency into locations, or else we won't be giving you blanket limits anymore.” So it's not just Zurich, it's the whole market. We needed to gather more information.

For example, we're asking for [more detail on] the “made-in” and “shipped-from” locations so we can geo-code them. Which of the factories that are scheduled are goods made from? And which ones are they shipped to?

We've developed tools to help brokers keep the limits and pricing that their clients need. The more info we can bring to the [reinsurance] table, the more we can put those limits out. It also allows us to get information for supplemental cover that only Zurich offers, such as supply-chain insurance that covers All Risk, not just named physical perils.

PC360-NU: Tell us more about tools you've developed to more effectively gather CBI data.

We use software that helps model the manufacturing chain with the goal of stopping companies from simply picking a number out of a hat without knowing the total exposure.

We've developed a CBI worksheet that is similar to a BI worksheet. We also have a risk assessment of suppliers that we do that helps us look into specific exposures, including natural-catastrophe perils.

We've maintained a database of causes and durations of supply-chain disruption. What we found was that physical damage was not in the Top 5 causes of disruption. IT outages accounted for 52 percent [of incidents]—the number 1 cause. Companies need a broader All Risk policy. Interestingly, if you look at Japan the physical disruption [from the earthquake and tsunami] was in the north, but the supplier disruption was in the south due to labor and transportation disruptions. So CBI losses can arise from labor, strikes, transportation—and marine comes into play, too: The boat sinks, there's cover [for the property loss] but not for the cost of the delay.

Is the kind of information you're looking for readily available when clients come to market or at renewal?

It depends on the customer. Some companies may have had issues and are better prepared and are already asking questions. In other cases, it's the first time they've been asked.

Nobody wants to go through [a BI or CBI loss], and the first time is the worst time. There is always some element companies learn by going through the process that they hadn't learned before: They realize when they actually map the supply chain, the impact of a supplier is not $1 million, it's $10 million. You don't want to learn that after the fact.

One [data-gathering area] we do see that's harder than others is companies getting information about tier 2 and tier 3 suppliers, so to help, our policy covers all the way down the tier. So that relieves a little bit of the burden. We find that 40 percent of disruption comes from sub-tier suppliers.

What's the equation between the quality and quantity of supply-chain information a client supplies and lower rates and higher limits?

Obviously if we don't know anything about a supplier, we have to assume the worst; with small mom-and pop-shops in China, we have to make assumption about financials, if we are covering financial insolvency.

But in general the rate is tied to the actual risk at that supplier. So we go supplier by supplier and go through 23 areas of risk that companies have control over and ones they don't. Each supplier gets a grade and will require potentially different limits: $100 million per supplier is our maximum capacity.

Because we do all this analysis, it's essentially like forensic claim accounting. But we are able to do a lot of that up front and offer a pre-agreed claims methodology, so you come up with a probable maximum loss for each supplier, and we can agree on what the claim will cost. That provides great financial security to companies and CFOs.

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CBI Q&A with Zurich&rsquo;s Linda Conrad

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CBI Q&A with Zurich’s Linda Conrad