frankfurt A huge fire broke out in Hamburg-Bahrenfeld a few days ago. Several stacks of wooden pallets initially caught fire at a factory site. The fire then spread to an adjacent warehouse complex. There were no injuries and the extent of the damage was not immediately known.
Today, natural disasters and fires like this can cause significant financial problems for businesses. Because since the coronavirus crisis, companies have had problems with their supply chains, which are being exacerbated by the war in Ukraine.
Philip Beblo, global property insurance expert at Allianz Global Corporate & Specialty (AGCS), knows that if a warehouse catches fire or floods, rebuilding currently costs much more. “We are currently seeing significantly higher claims than last year.”
The result: Many businesses that have faced rising premiums and worsening property insurance conditions for years are likely to face higher burdens.
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According to Beblo, the importance of Ukraine as a supplier market for German companies, for example in the automotive and chip industries, should not be underestimated. Some raw materials or supplier parts are currently difficult or impossible to obtain. When they are available, they often become very expensive. And: due to sanctions, there are also no imports from Russia, such as iron and steel.
Underinsurance could become a problem
Under normal circumstances, companies can endure bottlenecks for a while. However, a major loss could have dramatic consequences. “The reconstruction of steel structures, for example many warehouses, is currently 50 percent more expensive than a year ago,” says Beblo. If stored goods, whose prices have increased enormously, are also damaged or destroyed, the amount of damage could even be several 100 percent higher than in the previous year.
Therefore, business interruptions in the event of damage often last much longer today. and therefore are more expensive than in the past. Already at the turn of the year, risk management experts that AGCS had surveyed in the German market described business interruptions as the biggest business risk in the current year.
Businesses can insure against fire, flood, and storm damage, as well as natural hazards. The insurer also covers lost profits if the company has the appropriate policy. However, long-term sales losses due to loss of reputation as a result of bottlenecks, for example, cannot be insured.
Due to the sharp rise in prices for many products, the Allianz subsidiary’s expert also expects many companies to be underinsured. “Companies should check whether the sums insured for their inventory are still sufficient in the current situation.”
Insurers had to pay for higher losses
Many insurance contracts already contain the corresponding adjustment mechanisms. Thomas Bischof, head of the Gothaer Allgemeine Versicherung, said during the balance sheet press conference: “Many policies are equipped with an index adjustment. With the current high level of inflation, insurance sums and premiums automatically increase.” While AGCS specializes in large clients with sales of €500 million or more, Gothaer sees medium-sized companies as the most important target group.
>>> Read here: Allianz could face cancellations from Russia
Many companies are aware of increases in property insurance premiums. Premiums have been rising for years, in part because insurers offer less insurance coverage. At the same time, they have recently had to bear heavy losses from natural disasters, for example after the flood disaster in the Ahr Valley.
In insurance conditions, pandemic and cyber exclusions in property insurance are now the order of the day, observes Stefan Rosenowski, CEO of the General Association of Insureds (GVNW). In the end, policyholders would be left with less material insurance protection, despite higher prices.
According to Beblo, companies often accept higher deductibles to avoid even more significant price increases. Larger companies are also increasingly using so-called captives, that is, their own insurers that hold venture capital. Insurers like AGCS work with captives and then step in only in extreme cases.
Plus: Cyber risks are hardly insurable for businesses anymore