MANILA, Philippines - The three major emerging risk issues confronting society today is environmental, cyber and terrorism. And these risk issues offer Philippine insurers opportunities to develop protection products for individuals and enterprises.
According to Ramon L. Zandueta, president and chief executive officer of Marsh Philippines Inc., identifing risks create new markets resulting in new products and opportunities.
Marsh Philippines has over 80 risk professionals dedicated to creating and implementing innovative, industry-specific risk solutions. It is a subsidiary of Marsh, one of the world’s leading risk advisory and insurance brokerage firm.
Environmental risk is a situation that individuals and companies need to properly manage.
It has the potential of crippling the resources of a company in case a man-made catastrophe such as major oil-spill pollution incident. Or a natural catastrophe such as Typhoon Yolanda.
A case in point is the 2011 floods in Thailand that resulted in a major disruption in the regional distribution of auto parts. Or the Deepwater Horizon Spill in 2010 involving British Petroleum.
And the impact of Typhoon Yolanda on agriculture, livelihood and the massive loss of life and property.
In spite of the seriousness and the impact this could bring to an organization, environmental risk is still managed in an adhoc fashion, according to the survey findings of the Economist, an Australian business magazine.
The risk advisor and insurance brokerage said that environmental-related insurance policy for business should provide protection for both first party and third party exposures on-site and off-site.
Coverages include clean-up cost, third party bodily injury and property damage, defense costs, first and third party business interruption.
Local non-life insurers can tap the local re-insurance market for additional coverage or protection.
They may also ally with foreign insurers and/or reinsurers with the expertise in environment-related policies.
In fact, the Insurance Commission (IC), the Asian Development Bank (ADB) and domestic insurers are finalizing the country’s first-ever earthquake pool fund.
The ADB provided a $225,000 technical assistance grant to launch the environment risk facility.
The plan is to develop a financially sustainable pilot earthquake catastrophe insurance pool covering small and medium residential and business property owners. When in effect, the fund would reduce the potential liability on the national government budget.
The pilot insurance pool would strengthen national private insurance companies’ ability to underwrite new policies on catastrophe risk and enhance their capacity to proactively manage and transfer risk to international reinsurance companies.
After all, the Philippines is one of the most highly prone countries to natural disasters, including earthquakes, in the Asia Pacific region.
In fact, the Department of Finance is proposing a multi-nation natural catastrophe (NatCat) risk pooled insurance facility.
Finance Secretary Cesar V. Purisima approached multilateral agencies, such as the World Bank and the ADB, to help spearhead the NatCat insurance facility.
Purisima cited as a model the Caribbean Catastrophe Risk Insurance Facility (CCRIF), composed of 16 member governments in the Caribbean area.
CCRIF is a non-profit, multi-nation risk pooling facility, owned, operated and registered in the Caribbean for Caribbean governments.
It is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short-term liquidity.
The initial target of the risk-pooled facility is vulnerable nations in the Asia Pacific region, such as Indonesia, Thailand, Malaysia and Japan.
Cyber risk is a major concern among companies and governments today.
Zandueta said that the 2013 Lloyd’s Risk Index identified cyber risk as one of the top five risks globally.
The findings are based on a global survey of 588 C suite and board level executives conducted by Ipsos Mori, a leading research firm based in the United Kingdom.
Curiously, all natural hazard risks such as earthquake, windstorm, flood and volcanic eruption landed in the bottom of the top 50 risks.
“Janet Napolitano, the recently resigned secretary of the Department of Homeland Security in the US has warned that we need to brace ourselves to a cyber 9/11 attack that can equal the impact brought about by superstorm Sandy.
Major infrastructure such as water, gas, electricity and transportation facilities could potentially be impacted,†the Marsh Philippines chief executive pointed out.
The recent cyber attack against a string of Philippine government websites is another case in point.
A cyber risk insurance policy provides protection for both first party and third party exposures.
Coverages must include privacy and security liability, information asset, business interruption including extra expense, cyber extortion, criminal reward fund and crisis management.
This policy fills many of the gaps in traditional insurance policies such as general liability, property, fidelity/crime and errors and omissions.
Limits can be purchased up to millions of dollars and offered by global insurers such as AIG, ACE and Zurich.
Premiums vary from thousand to hundreds of thousand depending on the size of the company, the industry, the level of risk involved and the limit purchased.
Security assessment tools are usually offered by cyber insurers to enable companies to assess their cyber exposures.
In its March 2013 market briefing, Marsh said that the number of clients purchasing cyber insurance increased by 33 percent from 2011 to 2012.
This trend was seen across most industries such as financial institutions, professional services and communications, media and technology.
A terrorism insurance policy provides both first and third party coverages and they include physical damage to buildings, machinery and equipment, business interruption, third party/employer’s liability and extensions such as contingent business interruption and denial of access.
This can also be broadened to a political violence cover which will protect the insured against insurrection, rebellion, war and war-like operations.
The cover can be purchased from the Singapore and London markets, and is also offered by global insurers such as AIG, Zurich, QBE as well as several Lloyds Syndicates.
Incidentally, this cover is also a lenders’ requirement on project financed undertakings.