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The Federation of European Risk Management (FERMA) has called on the European Commission to create an EU resilience framework for catastrophic risks to ‘address the severe shortage of business interruption insurance without physical damage (NDBI)’.

In a letter to the European Commission, FERMA set out the findings contained in a position paper written by a FERMA taskforce composed of experienced risk managers.

FERMA says that there is currently little to no insurance coverage available for financial losses from NDBI in case of catastrophic risks, such as the current COVID-19 pandemic. The position paper proposes addressing this via a multi-layered and graduated public-private partnership. This resilience framework would have the flexibility to respond to a range of catastrophic events, such as pandemic and massive cyber-attacks, that can create severe business losses without physical damage.

The resilience framework proposed by FERMA would function on four levels:

  • Enterprise-level risk management: anticipation, prevention, identification and mitigation of risks;
  • Transfer of risk to private insurance and reinsurance markets, developing enhanced coverage for NDBI;
  • National Member state pool guarantees;
  • European Union support for, and coordination between national governments.

(Re)insurance participation is important, according to FERMA. Insurance can apply clear parameters to give risk-based assessments for contributions from enterprises to the framework funding mechanism. In turn, this would give businesses an incentive to apply risk management methodologies, such as enterprise risk management, because they would be assessed on their risk management maturity.

What is NDBI?

Non-damage business interruption (NDBI) is a situation in which a business is unable to operate normally, despite suffering no physical damage, due to circumstances beyond its control (force majeure). For example, a factory might be compelled to cease operations because temporary national measures prohibit employees from going to work. Although there is no physical reason for the factory to close, it still suffers business interruption and financial loss. Apart from national pools, there is currently very limited insurance coverage available in Europe for NDBI.

Read the position paper (PDF).

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