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Non-Damage is no less damaging

Whilst not directly related, the global pandemic and the grounding of the Ever Given have highlighted risks which many companies may have previously thought uninsurable.

The perception is that business interruption policies require there to be a cargo or a property damage loss first. So in an event where a ship was grounded but didn’t sink or a building was inaccessible but didn’t burn down then insurance wouldn’t be able to respond.

But just because the cargo was unharmed and the building wasn’t ablaze, it doesn’t mean a business can’t suffer losses. Goods still can’t be made, clients still can’t stay in your hotel, your orders still can’t reach their final destination on time – all of which can have a devastating impact on a business’s bottom line.

Trade Disruption Insurance (TDI) and its close cousin Non-Damage Business Interruption (NDBI) are two insurances that can step-in to cover these losses when the damage isn’t physical.

Trade Disruption Insurance

In the case of the Ever Given, the vessel herself was largely unharmed and her cargo onboard remained completely intact. However, she was stuck in the Suez Canal for six days before being re-floated, and then spent a further 100 days in seizure by the Egyptian authorities. It meant that she arrived in Rotterdam nearly four months after she was originally due.

The contractual penalties faced by companies unable to deliver their cargo on time would undoubtedly have been severe. In addition, the loss of revenue for goods unsold would have considerably affected balance sheets.

Not only could TDI have protected losses for companies moving goods on the Ever Given, but it could also have assisted the 200+ vessels stuck in the traffic jam behind the ship for six days. Some decided to wait, while others diverted around the other side of Africa, but each vessel would have experienced long delays and damages due to their contractual obligations.

And it’s not just applicable to goods travelling by water either. For example, you could be a manufacturing company in San Diego moving stock by train along the US west coast and into Vancouver. If Californian wildfires make the journey impassable, a TDI policy could cover the financial fallout.

TDI can be applied to any trade of any type where either a force majeure or a man-made event has obstructed movement of goods from one place to the next.

Non-Damage Business Interruption

Whereas Trade Disruption Insurance generally (although not exclusively) requires a product to be moving between counterparties, NDBI can be structured to respond to almost any business-related risk, whether tangible or intangible.

The global pandemic has showed us that communicable diseases can cause extensive damage to supply chains and bring entire sectors to a grounding halt. One sector that’s been affected particularly badly has been the hotel and hospitality industry.

For many years the London insurance market has been creating bespoke policies to respond to hotels in just such a scenario. In the past, Legionnaire’s Disease or Norovirus have been areas of significant concern. Now the list of diseases and viruses is expanding rapidly, and insurers are looking at ways of constructing policies to respond to future pandemics, whilst at the same time limiting their exposure to the systemic risk which come with them.

It’s important to stress that NDBI can be applied to virtually any industry – not just to hotels and hospitality. We worked with a university, for example, that generated a lot of their annual income from foreign students, and they wanted a policy covering their business interruption exposure if students weren’t able to travel because of a global pandemic.

NDBI’s applicability is broad and diverse. From supplier-related issues to reputational damage, from force majeure to acts of man – subject to underwriter appetite, it’s an insurance you can apply to just about any potential trade obstruction you can think of.

How we can help

Both insurances have been available for many years – the key is to know how to access them.

Not only are we connected to a small handful of insurers who operate in these niche markets, we also have members within the team who have underwritten both TDI and NDBI policies. It makes us ideally placed to work with our broker partners and clients to help them understand how these products work and why they’re so important.

Whether you’re looking to address risks on your 10K or facing a one-off esoteric problem, we can work alongside you and your clients to try and find the right solutions in a specialist marketplace.

 

Get in touch

Kieron Russell is a partner here at Oneglobal and leads our US Programmes and Facilities team. If you’d like to learn more, he’d be happy to help.

Kieron Russellkrussell@ogbroking.com

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