Unseen perils and unexpected outcomes
South Africans have always being known as innovative and a country that once had a thriving entrepreneurial spirit. Some of the world’s largest companies were established within our borders and serve as a major source of income and employment for a population that struggles with unemployment.
It is therefore vital that the future sustainability (in so far as operating on an uninterrupted basis) is ensured. However, when it comes to business interruption (BI), claims are not as easy as ABC.
Explosive impact
The issue of BI claims was a key focus at the inaugural Allianz Claims Forum. Speaking at the forum, Jonty Kirkman – Head of the Engineering Division at Crawford & Co – pointed out that everyone involved in the process needs to be very sure about what they are doing.
The issue of BI claims was a key focus at the inaugural Allianz Claims Forum. Speaking at the forum, Jonty Kirkman – Head of the Engineering Division at Crawford & Co – pointed out that everyone involved in the process needs to be very sure about what they are doing.
“Property and BI claims can be complex, especially if there is more than one peril involved or if more than one cause contributed to the claim,” said Kirkman.
Kirkman pointed towards the 2015 Tianjin Port explosions, which happened in the North of China) as an example of this. On 12 August 2015, there were two initial explosions at the Tianjin port (which at the time was the world’s tenth busiest container port) which caused a few fires. Because of the proximity of chemicals, there was a second bigger explosion which caused significant damage.
The second explosion (which some reports suggest was equivalent to an explosion of 30 tons of TNT) resulted in 173 deaths, 797 non-fatal injuries, the destruction of seven and a half thousand containers, with 70 000 cars being written off.
Further, a thousand residential apartments which were in the immediate vicinity of the port were damaged.
Perils on many fronts
Because of the size and magnitude of the Tianjin explosions, as well as the damage and losses that ensued, investigations into the cause of the explosions took many months.
Kirkman pointed out that if we took the above incident into consideration for a BI claim, quite a few questions would need to be answered.
“The most important thing we need to consider is proximate cause. When determining this, we need to consider four factors. The first factor is that proximate cause must result in damage; the extent of the damage and resultant interruption in business must be established; quantification of the loss in terms of the policy must be established; and excluded perils over insured perils as well as over insured perils over uninsured perils need to be established. What cover does the company actually have,” said Kirkman.
Many more questions
The Chinese courts eventually found that the company who owned the Tianjin port acted negligently when it came to the storage of chemicals, so a BI claim in that sense would not have been a case of convoluted causes. But Kirkman pointed to another case study.
A metal production company, of which there are many in South Africa, has a number of furnaces that run around the clock to produce metal. Chemicals are used in the metal production process and are highly flammable. At a particular furnace, careful attention was not paid during a routine maintenance which resulted in a furnace malfunction. A fire ensued and a portion of the production plant was burnt down.
As pointed out, careful attention during maintenance could have caused the peril. So this needs to be clarified. We need to establish what constitutes as the furnace and what doesn’t. Traditionally, insurers will insure the furnace itself, but not the pipes running down into the furnace.
If the cause of the risks was in the pipe running down into the furnace, then to them, it is a clear case of an uninsured peril. But many would sympathise with the owners of the company arguing that the pipes feeding into the furnace should surely be a part of the furnace.
A double edged sword
Kirkman pointed out that another issue that makes BI claims complicated is that companies need to insure against current perils as well as future perils.
While the point of insurance is protection against unforeseen risks and losses, how does a company protect itself against the losses suffered in the Tianjin explosions?
A further risk is reputational damage after a claim has occurred. If it is determined that negligence was the cause of the business interruption (as was the case with Tianjin), how does a company cover themselves for future loss of revenue brought about by lack of trust.
Editor’s Thoughts:
There are insurers in the industry who are developing apps that promise to try and quantify the cost of BI claim should it occur. But with many contributing factors in the wake of a claim, these apps don’t detract away from the fact that BI is not a simple beast to tame. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
