Business Interruption Coverage:
Necessity or Luxury?
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Speakers
Barry Mitchell – Director, Risk Security & Loss Control, Teck Resources
Barry has been in the Security and Risk Management indusrty for over 20
years, as a private business owner; with a global insurance provider; and now
with Teck Resources Limited.
Thomas K. Varney – Regional Manager, Allianz Risk Consulting N. America
Tom is responsible for delivering client directed Loss Control services for six
Lines of Business (Property, Marine, Liability, Engineering, Energy &
Aviation) and leading more than 50 risk engineers throughout Canada, United
States & Mexico as part of a global network of 250+ engineers. He joined
Allianz Global Corporate & Specialty in 2011.
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What to Expect
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This will not be a business interruption wording review. It is
about business resiliency & recovery!
Information is key (data collection & greater transparency).
A better overall understanding of BI and CBI exposures.
Sometimes creativity is required when addressing BI and CBI
exposures.
Risk assessment requires an analysis process that includes
both the inside and outside exposures.
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Teck’s Corporate Risk
Management Philosophy
• Risk is an inherent aspect of our business
• Accountability for management of risk may cross lines of
responsibility
• Some risks are common to all operations while others
may have unique risks
• Risk events may have local implications or may impact the
whole company
• Risks can be categorized as internal within our control or
external as determined by factors and events beyond our
direct control
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Red Dog Operations
• Large scale, low cost
zinc production
• 68 degrees north
latitude in Alaska
• 50 miles inland from
port
• Air access only
• Fully self-supporting
• Sole reliance on selfgenerated power
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Red Dog - History
The first report of
mineralization in
the Red Dog area
1953
NANA selected
the lands and
proceeded to
discuss mine
development
possibilities
1981
1970
Pilot and
prospector, Bob
Baker of Kotzebue,
Alaska noticed a
rusty alteration zone
in Red Dog Creek
1982
Cominco Ltd. and NANA
reached an agreement that
led to the development of
the mine.
Cominco to lease the
property from NANA
operate the mine
and market the concentrate
~20 year+ mine life,
with potential to
increase further
2014
Construction was
completed
1989
2001
Teck acquired
Cominco
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Red Dog - Site Plan
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Red Dog - Port Site Plan
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Red Dog - Port
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Shallow water port
Narrow shipping window
 Four months open water for shipping
 1,350,000 wmt of concentrates in 100 day ice-free
window shipped by bulk carrier to Canada, Asia,
Europe and Australia
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Red Dog – Foss Barges
• Foss built two barges for lightering – Noatak and Kivalina.
• Owned and operated by Foss, but only used for Red Dog
 Start of season, come up with supplies
 End of season, stored and maintained in Seattle
• Barge lighterage system - to load ships at anchor 3 nautical
miles off coast
• 24-27 vessels per season - (35K to 95K wmt capacity each)
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Red Dog - Foss Barges
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Red Dog - Foss Barges
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Red Dog - Foss Barges
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Red Dog – Barge Loss Effect
• During a typical year, 350,000 – 700,000 wmt (from a
total of 1,350,000 wmt) of concentrate would
remain at site if lightering capacity was reduced to a
single barge prior to mid-August
• Not able to store concentrate outside for
environmental reasons; therefore, after storage is
full, would force a mine shutdown resulting in B.I.
exposure
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Red Dog – Barge Loss Effect
• If we lose a barge, we have a variety of options:
 Keep loading with the remaining barge
 Attempt to bring in a self-discharging vessel
 We have tried to insure B.I. through property
program but due to treaty exclusions, property
insurers cannot write hull coverage
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Red Dog – Loss Control Measures
• Essential spares, i.e. boom –
contingency plan is in place in
event of boom failure
• Loading surveys
• Tug surveys
• Internal compartments’ condition
survey
• Regular maintenance program
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Red Dog – Loss Control Measures
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Red Dog – Loss Control Measures
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Red Dog – Loss Control Measures
•The tug captain has the final say on whether they will
operate. Ship captain will also have say in whether barge
can come alongside ship
•Weather conditions
 Suitable port facility and ship
 Monitored daily and for as much as 36 hours in
advance
 Sea, and swell conditions
 Back-up plan if weather turns
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Red Dog – Risk Transfer
• No traditional BI solution
• Trade Disruption Policy – Marine Markets
 Hull and weather perils
 Additional costs to charter similar barges
 Additional expenses to stockpile
 Demurrage costs
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Other Potential BI Triggers
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Reputation, loss of social license
Country risk
Union trends
Trends re. human rights, slavery, etc.
Natural disasters
Supply chain
Procurement
No business no community?
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The Ripple Effect!
•Research statistics
•Marketplace situation
•Some potential solutions
•Is business interruption coverage a
necessity or a luxury?
Source: AGCS Managing Disruptions Supply Chain Risk: an insurers perspective
Disruption in one part of the world is rarely contained
to that area!
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Global Economy
• Disruption preparation
• Lack of transparency
• Key supplier exposures
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Source: MunichRe,
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Disruption Preparation
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Source: MunichRe, NatCatSERVICE
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Supply Chain Optimization (Procurement)
• Risk management involvement in
procurement process
• Global interdependencies
• Geographical concentrations
• Infrastructure challenges
Source: AGCS Managing Disruptions Supply Chain Risk: an insurers perspective
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Increasing Global Interdependencies
Source: http://supplychainlogistics.wordpress.com/?s=boeing
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Source: http://supplychainlogistics.wordpress.com/?s=boeing
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Geographical Concentration of Production
• Country’s shares in silicon and computer industry
(% of global suppliers)
Silicon
wafers
Semiconductors
Computer hard
drives
23%
45%
60%
Thailand
Japan
World
Source: IHS Global Insight
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Source: IHS Global Insight
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Global Infrastructure Challenges
Quality of electricity supply by country, 2010
Source: World Economic Forum
Legend:
1 = insufficient and suffers frequent interruptions
7 = sufficient and reliable
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Source: World Economic Forum
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Insurance Coverage & Example
Interdependencies versus Contingent Business Interruption (CBI)
Coverage for losses effecting other locations within the supply chain
Standard Business Interruption covers loss of income suffered after physical damage at same facility
Interdependency covers the “intercompany”
production streams
• Suspension of operation at one facility of the
insured caused by
• a physical loss or damage at another facility
• Coverage normally up to policy limit
CBI covers the “external” production streams
• Suspension of operation at one facility of the insured
caused by
• a physical loss or damage at a facility of a supplier or
customer
• Service Interruption follows the same pattern
• Coverage based on sublimit
Source: AGCS Managing Disruptions Supply Chain Risk: an insurers perspective
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Business Interruption & Accumulation Risk
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BI loss in 2013
Fire severely damages a chemical plant
in Europe
 Plant produced a large quantity of the
world’s supply of a chemical necessary
for a compound used with various
components in the automobile industry
 Estimated business interruption:

― 3 months
― Major impact felt by numerous automobile manufacturers
Source: Munich Re
Even on a single location basis, one can have a combined loss and thus
accumulation, but a natural peril multiplies this impact!
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
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How Business Continuity Management
Can Mitigate Losses
• The Players
 Silicon wafer supplier
 Computer manufacturer A
 Semicon manufacturer B
• Chain of Events
 Earthquake
 Extensive damage to wafer
manufacturing facility
 Wafer supplier unable to
meet procurement
obligations
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
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The Consequences
Company A
Company B
• Risk management processes had
identified wafer manufacturer as
critical
• Risk management processes had
identified wafer manufacturer as
critical
• BCP identified secondary supplier
• BCP identified secondary supplier
• Secondary supplier located in the
same region
• Secondary supplier located in Canada
• Secondary supplier had also suffered
major damage
• Within a week the company was able
to state that the events did not have
a material impact on production
• Sourcing from an alternative supplier
took more than a month
• Reported a 10% rise in profit and
increased market share 2% in Q2
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
• Loss of US$100mn and lost 3% market
share
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How Business Continuity Management
Can Mitigate Losses
Lessons Learned
• Having identified risks in a BCP does not
always mean that the risks are adquately
mitigated
• Catastrophic events and accumulation
potential should be part of BCM risk
assessments
• Making sure a continutiy plan rises to
the proper level within an organization
to assure proper supply chain resilency
Assessment of
BCM risk
identification &
resilience
strategies should
have highlighted
the weaknesses
of company A
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
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Where Insurance Can Support The
Risk Assessment
Site visits
Supplier assessment
Risk assessment key
critical suppliers
Scheduled assessments
identifying local exposures &
critical suppliers
CBI Meetings
Discussion on
overall supplier
dependencies &
mitigations
More holistic approach required, clearly focusing on key risks!
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
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Conclusion
• Information is key (better data and
greater transparency)
• Risk analysis should include both
inside and outside exposures
• So is BI a necessity or a luxury?
It depends!
Regardless of the choice made both approaches require
doing your homework and thinking outside the box are
both essential to assure continued business resiliency
© Copyright Allianz Global Corporate & Specialty AG 16.01.2013
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Questions
&
Final Comments
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Please complete the session survey on the RIMS14 mobile application.
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