Is there a silver lining in Eyjafjallajokull’s ash clouds?

Until recently, most people had never even heard of the unpronounceable (unless you’re from Iceland) volcano, Eyjafjallajokull; let alone dreamed that ash clouds that would rise from the volcano would disrupt air travel around the world, delivering a hard blow to the global economy, just as it took the first tentative steps to recovery in the wake of the world-wide recession.

Who would have thought that the effects of an erupting volcano in Iceland would be so far reaching, both in geographic and economic terms? The European Commission estimates that the economic impact of the six-day airspace shutdown due to the volcanic ash cloud could be around €2.5 billion. And that’s just the cost to the air industry; the economic impact extends far, far wider. A diverse range of businesses from fresh produce growers, to tour operators, to jet fuel providers, have been affected and, even if they had coverage, their traditional business interruption cover would not provide for this type of ‘unnatural natural’ event.

Simply put: this is a completely new and unexpected risk that, until now, has not even been thought of and the traditional market will certainly not be keen to step in and provide coverage for this type of event on its own in future. What is certain is that, as the global village gets ever smaller, there will be a number of unthought-of (and almost unimaginable) risks lurking in the wings and the insurance industry needs to provide some sort of cover to protect its clients.

Unthought-of risks like the volcano ash clouds will probably never be insurable on a traditional basis alone, and self-insurance, in conjunction with the traditional markets, will have to be the answer. Perhaps there is a silver lining in these ash clouds for the alternative risk transfer (ART) industry which, together with big international insurance catastrophe capacity providers, like international reinsurers, could step into the breach and provide some sort of finite solution that will give relief to clients affected by this type of event.

Certainly the ash clouds that have wrecked havoc across the globe will open a new debate about the types of risk that companies face, and how best they can deal with them. While there is very little that airlines, and other industries, can do to be proactive about or manage these almost unimaginable risks, they can start making provision for them and it is extremely unlikely that such provision will only come from the traditional market. The ART industry – which is after all founded on providing for uninsurable or difficult to insure risks – may have an opportunity here to join forces with traditional markets to take the innovation for which ART is known to a whole new level.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450