With Asia being the most disaster-hit region in the world in 20233, , extreme weather events can cause considerable damage to manufacturing plants. In 2020, 20 automotive manufacturing facilities in Thailand4, which make up about 10% of the country’s total automobile parts production, were disrupted by floods.
For physical risks in the construction phase, all stakeholder groups (C, O, F) need to consider the impact of natural disasters on the progress of the facility’s construction and future operational considerations. Not only do owners need to ensure the new facility design complies with the minimum local regulations, but they must also account for more stringent international standards such as NFPA and FM Global. In the case of an emerging technology, it is advisable to align design review process with risk engineering to identify hazards that the design may pose to the property, environment, workers, and public. This will help assess the potential risks and Estimated Maximum Losses (EMLs) associated with the facility design and enable owners to make informed decisions.
Additionally, they must accurately quantify risks to ensure sufficient coverage by leveraging the physical risk modelling capabilities of a risk advisor, and subsequently obtaining right-sized insurance coverage. The potential for causing pollution or damage to the environment during construction works is generally elevated compared to the everyday running of a facility. The potential for a fuel spillage or for an escape of large volumes of water is increased and therefore so is the potential for a regulator or third-party claim for damages or a requirement for clean-up. Contractors pollution liability insurance can be used to insure against the eventuality of having an environmental liability for pollution, caused by a spill or leak or through the exacerbation of an existing land contamination situation.
In the operational phase, the latest Property Damage and Business Interruption (PDBI) claims data from Marsh Asia justifies the need to obtain adequate protection against physical risks: In the span of just one year from 2022 to 2023, the number of PDBI claims in Asia has increased by 18%. Regardless of sector, each business has unique dependencies, operating models, and characteristics — such as geographical location, aging public infrastructure/utilities — that can put it at risk of property damage and business interruption losses.
With the increasing frequency and severity of natural disasters, traditional insurance may fall short in adequately protecting organisations from natural catastrophe (Nat Cat) related losses. Parametric insurance offers a complementary solution to fill the gaps left by PDBI coverage by linking coverage directly to predefined triggers, such as wind speed or rainfall levels, ensuring certainty and efficiency of payouts when specific conditions are met.