They have also increased their scrutiny of information on suppliers and business continuity plans, she said.

“We are seeing more scrutiny and restrictions for traditional CBI and BI property damage cover, but insurers are also responding positively by providing specialist standalone insurance,” said Miss Woolley.

Insurers offer some cover for supply chain disruption through CBI insurance included in traditional property and business interruption cover—mainly through suppliers’ and customers’ extensions. However, some reinsurers, industrial insurers and Lloyd’s syndicates have launched specialist cover in recent years and months.

Concerned with a lack of transparency and the potential for risk accumulation, the wider traditional property insurance market has reacted to the Japan earthquake.

Insurers have materially reduced their limits and increased their prices for CBI covering earthquake, said Peter Hacker, Executive Chairman of the Communications, Technology and Media practice at JLT Specialty.

JLT offers a bespoke stand-alone CBI policy, and has developed CBI pricing tools and claims services.

Insurers’ CBI losses from the Japanese earthquake are likely to be high said Mr Hacker. However very few CBI claims have been concluded in the CTM sector because corporates have focused their efforts on mitigating their losses, he said.

Insurers might have initially underestimated CBI claims from Japan—in particular the potential for the extra expenses component and the required settlement and adjustment timeframe. Total losses could still be more than $10bn, he said.

Reinsurers of traditional property CBI insurance have also responded and expressed concern with the way CBI insurance is currently offered by insurers.

The disruption to global supply chains following the March 11, 2011 earthquake in Japan—which hit the technology and motor sectors hardest—highlighted the accumulation problems presented by CBI risk.

CBI cover offered as an extension to property insurance policies has broadened over time. But it is rarely priced separately and not properly risk assessed, said Heike Trilovszky, Head of Corporate Underwriting at Munich Re.

The reinsurer is currently reviewing the terms with which it offers CBI cover through property reinsurance and direct insurance.

“We cannot continue to provide CBI cover on the basis that it is thrown in with BI cover for free—with little transparency, no understanding of accumulations and without separate pricing. We need much greater transparency, otherwise we will have to reduce our exposure,” she said.

One option to improve transparency would be for reinsurers to introduce a standard CBI exclusion for certain perils in their catastrophe coverages. However, Munich Re does not advocate this currently.

“We are talking to risk managers about alternative solutions, at least for the largest accumulations,” said Miss Trilovszky. “Reinsurers need more transparency to get greater levels of comfort—to know that they are not over exposed to peak scenarios,” she said.

Reinsurers can continue to give CBI cover if transparency is improved—through requiring more information from clients on CBI exposures. Ideally reinsurers would have the same transparency for CBI as they do for traditional property damage BI, said Miss Trilovszky.

“It is not feasible for insurers to request precise information on all suppliers and production sites within a supply chain,” Miss Trilovszky said. “Therefore, the change needs to be in the insurance product,” she said.

Munich Re’s call for changes to the way CBI is underwritten does not mean it is withdrawing cover, at least at this stage. The reinsurer still has an appetite for CBI, and sees increasing demand as an opportunity, said Miss Trilovszky.

“The supply chain has become riskier and more relevant for corporates, and it is the responsibility of insurers and reinsurers to provide a product,” she said.

“Insurance cover and transparency go hand in hand. The more information an insurer or reinsurer has, the more cover we can offer. Less information will mean little cover—for example, only for key suppliers, lower limits or for fewer perils.”

However, Munich Re does not expect changes to property damage CBI policies before the key January 1, 2012 reinsurance renewal. This will take some 18 months, said Miss Trilovszky. There will also be different approaches depending on the client, its sector, location and business model, she added.

Traditional business interruption insurance—which is triggered by physical damage to property—is not sufficient in today’s business environment, said Marsh’s Miss Woolley. The volcanic ash cloud and earthquake in Japan have highlighted the limitations of traditional business interruption insurance, she said. Even physical damage events like the Japanese earthquake have non-damage business interruption, such as rolling black-outs and nuclear exclusion zones, she added.

CBI extensions to property policies—such as suppliers and customer extensions—have relatively small sub-limits and typically only cover first tier suppliers, said Miss Woolley. However, some insurers have been developing stand-alone supply chain solutions that offer wider cover that go further down the supply chain, she said.

Supply chain insurance offers higher limits and, unlike traditional property-damage BI, will cover non-damage business interruption risks such as black-outs, strikes, riots and pandemics.

New solutions include the innovative use of triggers and bespoke policies that provide high levels of cover for specific suppliers, locations and named perils.

For example, earlier this year Marsh launched a new supply chain product based on pre-agreed claims payments and parametric triggers—such as wind speed or the magnitude of an earthquake.

Willis also launched business interruption insurance for companies with key facilities, suppliers or customers close to a nuclear facility. It covers lost revenues or extra expense resulting from the imposition of an exclusion zone following a nuclear incident, which could result from a failing at the plant or following a natural catastrophe.

Willis also launched business interruption insurance for companies with key facilities, suppliers or customers close to a nuclear facility. It covers lost revenues or extra expense resulting from the imposition of an exclusion zone following a nuclear incident, which could result from a failing at the plant or following a natural catastrophe.

Nuclear exposures are generally excluded under traditional business interruption policies, said David Reynolds, Executive Director at Willis Global Markets International.

The bespoke policy has ‘meaningful’ limits, depending on the risk assessment, he said.

The product could potentially be used as the model to provide cover for other business interruption and denial of access risks that are not covered by conventional insurance policies, such as an exclusion zone set up following a catastrophe or a disease outbreak, said Mr Reynolds.

“There will be more products that address specific perils or sectors, and we are currently developing other business interruption solutions,” he said. “It is a question of first identifying the risk and then assessing whether the risk is significant enough that our clients would be interested in protection against its consequences.”

A small number of insurers and reinsurers are providing supply chain insurance on a named peril basis, although in some cases limits are still relatively low, said Miss Woolley. Marsh is currently working with Lloyd’s syndicates to develop new supply chain cover to pick up ‘spikes’ in exposure, offering high limits through high deductibles and for named perils.

“Insurers do see supply chain risk as a potential growth area, although they are treading carefully and moving away from providing cover through traditional physical damage BI policies,” said Miss Woolley.

There has been a shift in demand from companies that require CBI cover, in particular for higher limits and for non-physical damage perils, said Volker Muench of Allianz Global Corporate & Specialty, which plans to launch a new non-damage business interruption product next year.

The insurer currently offers BI and CBI cover as an extension to property insurance, but will launch its first stand-alone non-damage product next year.

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