Aon seeks to cover the intangible with parametric NDBI product

Insurance and reinsurance broker Aon aims to help corporates cover the intangible, with the launch of a new Non-Damage Business Interruption (NDBI) product that can utilise parametric indices, promising to respond to the evolution of business models and what matters most to globally active corporations.

The new product from Aon’s Innovation & Solutions team promises to help businesses protect their income streams, especially those with high levels of intangible assets and modern business models.

The product has been developed with the likes of Airbnb and Uber in mind, corporations that have broad global exposure to events but lack the insurable assets of their own to protect.

As a result, these modern companies have significant exposure to the kinds of events that hit mainstream media, such as severe weather, natural disasters, terrorism attacks, cyber attacks, or economic crises, but without the insurable assets it is their income streams they are looking to protect, making interruption coverage the most appropriate solution.

Aon explains that the Non-Damage Business Interruption (NDBI) cover is designed to, “protect companies’ revenues against business interruption costs that result from an event where there is no physical damage.”

The broker highlights that for some of the world’s largest companies now physical damage can actually be a lower priority than threats to income streams, supply chains and cash flows, making modern risk transfer tools using parametric triggers particularly appropriate.

Kurt Cripps, head of Aon’s Innovation & Solutions team, explained, “Given that more and more businesses comprise either few, or a low concentration of physical assets, there is a need for an insurance product that places less emphasis on the physical damage component of a loss. This new NDBI cover protects these types of companies against the events that can have the biggest impact on their revenue streams.”

The NDBI product is backed up by advanced data, analytics and actuarial analysis, allowing for the development of customised corporate insurance policies tailored to clients needs and the biggest threats to their business.

In addition, the use of data and analytics, alongside the understanding that it is the knock-on effects of severe events, including weather and catastrophes, that really threatens these modern, often technology-driven corporates, means that the product can use parametric indices for triggers, as well as or in addition to traditional re/insurance product concepts.

Aon said that the NDBI cover can benefit a wide range of businesses, including hotels, retailers, pharmaceutical firms and transportation companies. In the hospitality and retail sector in particular, the product can help to mitigate the financial impact of reduced customer footfall following an event that causes a delay or cancellation to transportation networks.

Global reinsurer Swiss Re and other re/insurers at Lloyd’s of London are lined up to provide the necessary capacity for this product.

Of course, this type of product has been on offer and sold by the industry for at least two decades, with prime examples being weather risk management insurance and parametric insurance for supply-chain risks.

But with technology advancing all the time and a realisation that the world of business has changed, leaving some of the largest companies in the world particularly exposed to cash flow impacts from major events, but where there is little prospect of a physical damage impact, new solutions are required and clearly Aon has recognised this and is responding to this need.

The ILS market has provided capacity for similar types of product solutions in the past, especially in the weather risk space, and the capital markets certainly has the appetite to support parametric NDBI solutions for corporations.

Of course so too do the world’s largest reinsurance and insurance firms, hence there is likely to be a lot of competition for becoming capacity providers to these types of risk transfer tools, which also means the corporate risk managers stand to find attractive pricing for their NDBI protection needs.

The networked world has been identified as an opportunity in re/insurance circles for many years, but it turns out it is the networked cash flows that also really matter for technology businesses around the world.

Of course these also matter to any globally active, particularly supply-chain or consumer focused businesses. The next step is for these corporates to be helped to identify where external forces are a threat to their business continuity, even without any physical damage being evident, and then for the risk and insurance industry to help them in developing responsive solutions to protect against or finance those risks.