Product Insights

Business interruption insurance (BI), typically bundled with property insurance, covers income losses resulting from direct property damage. For example, if a South Florida hotel suffers damage from a hurricane and has to stop service for repairs, BI will cover income loss.

However, as climate change intensifies, direct physical damage is an insufficient indicator of true risk exposure.

​​The costs of a disaster can extend beyond the physical damage. It can include disruptions to a business’ network of dependencies, such as power outages or compromised transportation systems, such as ports, highways or airports. The economic loss that transpires in these circumstances – referred to as non-physical damage business interruption – tends to encompass the risks to a company’s value-generating activities, and most insurance excludes these risks.

But with One Concern Domino™ and One Concern DNA™, insurers understand better actual risk exposure and develop new products to meet the growing demand for coverage for any disruption regardless of whether their property suffers direct damage.

To illustrate the importance of dependency risk analysis, we used Domino to analyze the Boston Convention Center, a 1.7 million square foot, LEED-certified building near the Boston waterfront. We focused our analysis on how the convention center’s infrastructure dependencies, such as power grids and airports, would be impacted by a 1:250 year wind event with climate change considered.

The convention center is projected to be virtually undamaged in a wind event, but it will still suffer significant downtime due to dependency impacts. Traditional building risk assessment provides an incomplete picture of exposure; Domino calculates a more complete picture of an assets vulnerability to catastrophe in order to inform decision making.

We urgently need to address the coverage gap as climate change increases to avoid significant market impacts. Not only can the insurance industry serve as leaders in this effort, but by offering innovative insurance solutions that protect asset owners against dependency risk, insurers can increase their relevance to customers. Moreover, they can take advantage of the opportunity to generate new revenue streams through innovative climate risk product offerings.

As the Boston Convention Center example illustrates, climate change is exacerbating the consequences of the protection gap, making it more difficult for organizations and communities of all sizes to cover the burden of uninsured economic losses. As a result, the widening coverage gap is a top priority for insurers, CEOs and regulators.

Traditional business interruption coverage offers no protection against dependency risks like those faced by the convention center. Insurers have historically utilized a binary assessment of an individual asset: is a building damaged or not? One Concern’s dynamic resilience modeling challenges organizations to think beyond this binary posture to a spectrum approach that allows them to truly understand the realities of dependency risk.

Each year, extreme weather and natural catastrophes break new records. Our economic system is struggling to keep up with the shocks, and insurers who offer a solution to this issue will have a distinct advantage in a market that desperately needs coverage solutions for climate risk.

Until now, business interruption caused by external infrastructure risk has often gone uncovered, but with One Concern’s resilience products, insurers have full visibility into dependency risk for the first time. Understanding climate stress tests allows insurers to target risk finance solutions that provide genuine revenue protection. The ability to quantify external vulnerability to natural catastrophe and climate risk enables the potential to insure it, which the first big step forward in narrowing the protection gap.