Modelling business resilience and communicating to insurers

A major player in the European telecoms sector needed to improve communication of its network resilience to a panel of insurers. Previous loss estimates had raised doubts about the validity of some broad assumptions made, and concerns were expressed about the fact that expected costs for temporary solutions were not separately identified.

The project goals were therefore to:

• better understand the loss of profits implications from major insurable incidents at key facilities (e.g. fire, explosion, subsidence, flood).
• review and improve the solidity and sophistication of the BI information used in insurance renewal submissions.
• reduce the annual workload involved in updating BI loss estimates and underwriting information.
• review the level of BI cover needed.

Following detailed consultations and the implementation of recommended refinements to the data collection system, Zurich consultants were engaged to develop a spreadsheet-based model of revenue types by individual equipment item, allowing the impact of various interruption risk scenarios and continuity plans to be assessed.

Key steps in the modelling process were:

• Import of existing revenue data, adjustment for interdependency and other services, and aggregation of Group level gross profit exposure per location.
• Incorporation of recovery plans and costs of temporary solutions to present incident recovery in time-v-gross profit loss diagrams.
• Generation of loss estimates for defined scenarios.
• Compilation of underwriting information for use in insurance renewal submissions.
   

The completed model was used to calculate BI loss estimates for the largest installations with the longest interruption periods. Sensitivity checks were made on each assumption and recovery parameter to identify the key resilience drivers and to validate the results. These were presented at an underwriters’ forum together with an explanation of the model and suggestions for interpreting the results at renewal.

Further developments are planned to incorporate loss incidents that affect multiple installations and other business activities. Future site survey activity will be directed by the model output to concentrate on locations and equipment where property damage estimates are crucial to the overall insurance programme.