Page 36 - Insurance Times June 2024

occur due to events that may no longer be related to revolutions focused on manufacturing with the help of
physical damage. Non-physical damage business mechanization and mass production. Companies and
interruption (NDBI), as it is known, is growing in frequency, industrial hubs were established for localized manufacturing.
severity, and unique varieties. The most important risk faced by businesses during this era
was physical damage to property from fire, floods, and other
Evolution of Traditional BI Insurance perils. The BI cover created during this period worked in
conjunction with and because of damage to the underlying
BI insurance is an essential component of risk management
property, which is known as the "material damage proviso."
that enables businesses to recover after unexpected
BI insurance coverage is generally offered as a part of a
interruptions and return to their pre-interruption state. The
standard business policy or purchased as an endorsement
origin of BI dates to the early 19th century. In 1817, the
or rider to a property insurance policy.
"Hamburger General-Feur-Kasse" (Hamburg Fire Office), a
German insurer, became the first insurer to offer cover for
The third industrial revolution that followed focused on
the loss of rent as a supplement to fire insurance. This marks
automation. The highlight of this revolution is the advent of
the inception of a product that bears resemblance to BI
microprocessors, computers, and electronics. It further
coverage sold today. Although this policy did not cover
paved the way for the emergence of globalization,
business profits or losses, it addressed a significant concern
outsourcing, and service industry. At this stage, the factors
for businesses impacted by property damage.
triggering BI expanded to include contingent business
interruption, supply chain disruption, cyber risks, and
The term "business interruption insurance" was not formally
pandemics that do not have a property damage causation.
used in the initial decades. The coverage versions sold during
Contingent business interruption is another such risk,
that period focused only on specific aspects like lost rent or
stemming from the interruption of business operations of a
consequential costs. Hence, terms such as "use and
critical supplier, customer, or partner due to a covered
occupancy" and "gross earnings" insurance were commonly
used as alternatives to BI until the mid-20th century. The event such as a fire or natural disaster at their premises.
The trigger for BI and CBI is generally direct physical
term BI insurance gained traction in the early 20th century
damage from the covered peril to property, but the
before becoming standardized in 1986 when the Insurance
difference lies in whether the damaged property belongs to
Service Office (ISO) in the US recommended replacing "gross
the insured or pertains to their supplier, customer, or
earnings" with "Business Income Coverage" to include
partner.
broader financial losses due to business interruption. Since
then, coverage has considerably evolved to provide
The ongoing fourth industrial revolution embodies new
protection against loss from the covered peril incurred
technologies such as the internet-of-things, big data, cloud
directly or indirectly.
computing, digitalization, artificial intelligence, autonomous
decision-making, and cyber-physical systems. As these
BI insurance provides coverage for loss of revenue, reduction
technologies mature and gain business adoption, they pave
in turnover, monthly mortgage, lease and rent payments for
the way for the emergence of new industries and business
business space, loan payments for the business, taxes,
payroll, costs related to temporary relocation, training costs models, altering the way incumbents operate and shifting
the characteristics of BI, ultimately pushing it more towards
for employees to learn how to handle new equipment, and
NDBI.
other extra expenses. Extra expense coverage provides
financial protection for extra expenses that a business incurs
to keep operations running or to resume operations as Tectonic Drift Towards NDBI
quickly as possible after a disruption. The benefits under the The role played by businesses is continuously evolving,
BI coverage are payable during the period of indemnity, transitioning from commodities trader to goods
which is typically 12, 18, 24, or 36 months. Insurers will not manufacturer, service provider, insight provider, experience
provide cover for claims beyond the indemnity period. stager, and transformation orchestrator. The coordination
required for these functions is expanding significantly. The
The genesis and growth of BI insurance are synchronous risks affecting businesses have also taken on new
with industrial revolutions. The first and second industrial dimensions. The dynamic changes in the business and risk

The Insurance Times June 2024 33