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Welcome! Tuesdays with MEFIN REGULATORY FRAMEWORK PROMOTION OF PRO-POOR INSURANCE MARKETS IN ASIA III (RFPI-Asia) III ) Tuesdays with MEFIN 12 May 2020 Activities 15:00 Introduction - Uku Lillevli, Consultant, GIZ 15:05 Opening Message

  2. Welcome! Tuesdays with MEFIN

  3. REGULATORY FRAMEWORK PROMOTION OF PRO-POOR INSURANCE MARKETS IN ASIA III (RFPI-Asia) III ) Tuesdays with MEFIN 12 May 2020 Activities 15:00 Introduction - Uku Lilleväli, Consultant, GIZ 15:05 Opening Message - Dr Antonis Malagardis, Program Director, GIZ 15:10 MSMEs Unprepared for Business Interruption - Mr Arup Chatterjee Principal Financial Sector Specialist, Asian Development Bank Seeking Effective Business Interruption Insurance Solutions - Mr Tudor Moldovan Member of Supervisory Board and former CEO of Generali Romania 15:40 Open Forum 15:55 Highlight and Wrap Up 16:00 End

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  6. Business interruption risks of MSME’s Types of business interruption (BI) insurance Embedding BI insurance with integrated disaster risk management The Role of Business Interruption Insurance in Climate & Disaster Risk Management 5/12/20 7

  7. Adverse Critical Supply Chain Weather & Infrastructure Disruption Natural hazards Failure Cyber Attacks IT & Telecom Interruption to & Data Outages Utility Supply Breaches Technology Loss of Regulatory Change Reputation Changes Political Lack of Talent & Epidemics & Change Key Skills Pandemics The Role of Business Interruption Insurance in Climate & Disaster Risk Management 5/12/20 8

  8. Non-Damage Standard BI Contingent BI Data Driven BI BI • Insuring Loss • Insuring loss • Reimburses • Insuring loss of Income of income/ lost income of income and Ongoing revenue and and ongoing and ongoing costs as a ongoing costs costs & extra costs due to result of due to expenses the property disruption of resulting from interruption of damage to business an business due an owned (There is no interruption of to business physical business unavailability facility damage to caused by a of data and the insured, property computer the supplier or damage at systems the customer the premises caused by and there is of a customer hacking, Source: Holzheu, Thomas & Fan, Irina & Lechner, Roman & Tamm, Kulli. (2017). Commercial insurance: innovating to expand the scope of insurability. sigma. no BI Claim to or supplier technical be made) failure or human error The Role of Business Interruption Insurance in Climate & Disaster Risk Management 5/12/20 9

  9. • S OURCE : D INGEL , C ARL & P UTSCH , C HRISTOPH & T SIRKUNOV , V LADIMIR & M IGRAINE , J EAN -B APTISTE & D ANA , J ULIE & L UNG , F ELIX . Source: "Captives: An Efficient Tool for Catastrophic Losses," IRMI.com (2016). D ISASTER R ISK M ANAGEMENT : B EING P REPARED FOR U NFORESEEN S HOCKS . 10.1596/978-1-4648-0817-3_ CH 11. The Role of Business Interruption Insurance in Climate & Disaster Risk Management 5/12/20 10

  10. ACHATTERJEE@ADB.ORG The Role of Business Interruption Insurance in Climate & Disaster Risk Management 5/12/20 11

  11. 5/12/20 12

  12. SEEKING EFFECTIVE BUSINESS INTERRUPTION INSURANCE SOLUTIONS TUDOR MOLDOVAN MEMBER OF SUPERVISORY BOARD OF GENERALI ROMANIA

  13. AGENDA AGENDA 1. Two types of business interruption risks 2. Challenges for the insurer underwriting business insurance 3. Motivation for purchasing insurance cover 4. Advancing business interruption insurance solutions

  14. 1. Standard risks – fire, property damage, etc. 1. 2. Uncertain hazards – extreme weather events RISKS THAT PRODUCE and pandemics BUSINESS INTERRUPTION Similarity: losses to business owners Difference: frequency and magnitude of losses

  15. 1. STANDARD RISKS  For standard risks, mitigati gation on means mutualization (pooling) of similar risks and specialization of insurers providing this line of business  Business interruption for standard risks has a long history and practice  Standard risks have predictable ictable frequency and predi dictable table losses 2. UNCERTAIN HAZARDS  Uncertain hazards have unknown wn frequencies and produce unknown wn losses  Mutualization of extreme events has not happened  Mitigation means finding also other sources for pain relief, e.g., PPPs

  16.  Random ndomnes ness  Unpredictable time and place of the insured event 2.  Event must be independent of the insured entity’s CHALLENGES behaviour FOR THE  Non-homogeneous group of SMEs INSURER  Financial diversification UNDERWRITING BUSINESS  Frequency quency and severit rity of the insured events must be INTERRUPTION predictable and quantifiable with sufficient reliability  Econ onom omic ic viabilit ility. . Premium must:  Be affordable and sufficiently reduce the insured risk  Cover insurer’s expected claims and costs

  17. 3. Motivati tion on for mitiga gating ing and trans nsferr erring ing financi ancial al risks ks: MOTIVATION FOR  Avoidance of financial bottlenecks after loss PURCHASING INSURANCE  Stabilisation of financial assets, e.g., cash flow COVER  Tax reasons

  18. Insuranc urance e cou ould serve e as as an econ onom omic alterna ternati tive e to to ri risk 4. financ ancing ing to to provide e liquid idit ity y or or a capital tal increase ease ADVANCING BUSINESS  Classic insurance INTERRUPTION  Integrated profit / capital insurance solutions, INSURANCE comprehensive insurance covering all areas SOLUTIONS  Parametric insurance

  19. PARAMETRIC INSURANCE  Insurance cover is triggered by facts (thresholds)  Challenge is to link the triggering measured value and the actual risk exposure  Potential to develop insurance solutions to protect income and cash flow Parametric insurance solutions can be the result of a con onsistent ent extensi tension on of of in insuranc ance e cover r from pure property damage, complimented by cover for business interruption and retroactive claims, to income and cash flow losses.

  20. EXTENDED INSURANCE COVER  Developments in non-damage BI and cyber insurance policies.  The compensation payment can be based on:  The loss actually suffered,  The amount of compensation agreed upon, triggered by exceedance of a defined threshold,  A staggered (spread over time) compensation triggered by the sequence of two or more objective events and any predefined intensities.

  21.  Difficult to establish a correlation between risk exposure and risk situation because of:  Constant changes in frequency  Constant changes in the severity of losses KEY CHALLENGE & OPPORTUNITY  Red educi cing g uncer erta tainties inties regar gardi ding ng frequency frequency and d severit erity y of f losses osses could make the insurance premiums more affordable (weather forecast models).

  23. TUESDAYS WITH MEFIN COVID19, Climate Change, and Insurance – related webinars from May – June 2020

  24. Thank you! See you again on the nex t Tuesdays with MEFIN

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