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ESG: Property and business interruption cover considerations

A report exploring the physical risks posed by climate change and how they impact property and business interruption insurance.
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29/11/2021

This is the first report in our series exploring how environmental, social, and governance (ESG) issues and risks can be mitigated and/or protected by insurance coverage.

Our initial focus is on the physical risks posed by climate change, and how they impact property and business interruption insurance.

The increased frequency and/or severity of natural catastrophes and extreme weather events has disrupted businesses and supply chains and had a direct negative effect on property and business interruption insurance. Combined with consumer and investor pressure on insurers to respond to an ESG agenda, the insurance industry has a critical role to play in building a more sustainable future.

ESG cover considerations for property and business interruption insurance outlined in this report include:

Flooding and natural hazard risk

  • Insurers are carefully monitoring, and in some cases reducing, their exposure to extreme weather-related losses.
  • ·Organisations will need to pay particular attention to newly imposed natural catastrophe sub-limits and exclusions. For heavily exposed sites, insurers are likely to require higher levels of self-insurance and/or improved resiliency.
  • Organisations may need to invest in site surveys and modelling data to assess the extent to which their sites are exposed, or how much damage is likely to result.
  • Developing a flood emergency response plan will help businesses recover more quickly from a loss, and give insurers greater confidence to put forward competitive quotations.

Nontraditional construction materials and methods

  • The construction sector is under pressure to build more sustainably, potentially changing their risk profiles.
  • Insurers will need to understand the implications and the risks to ensure appropriate pricing.
  • Construction organisations should engage with insurers early.

Localised power generation

  • Many organisations are embracing localised power generation using new or less established technologies that are, from an insurance loss perspective, relatively untested.
  • Policyholders should involve their broker and insurers early in the design process to ensure appropriate risk protections are considered, and to assess available insurance market capacity.

Carbon credits (UK emissions trading scheme)

  • Policyholders participating in such schemes should consider how an event that interrupts their business might affect their use of carbon credits, and the adjustment of any subsequent insurance claim.

Rebuilding “green”

  • When reinstating property, organisations may prefer to use more sustainable materials, and/or with improved thermal or energy efficiency.
  • It is important to consider what tactics and covers can be designed, in collaboration with their insurer, to deliver the intended outcome.

Riot and civil unrest

  • Protests related to ESG issues can be expected to continue to occur, the large majority of them peaceful.
  • Most commercial property insurance policies cover damage to buildings and other property caused by riots, civil commotion, strikes, and vandalism.
  • Unrest fuelled by ESG issues could impact coverage for physical damage caused by protesters going forward.

Download the report to find out more.

Report

ESG: Property and business interruption cover considerations

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