Contingent Business Interruption – how to prevent risks

June 11, 2025

In today's interconnected global economy, businesses rely heavily on a complex network of suppliers, partners, and service providers. However, this dependency comes with its own risks where interruption can lead to significant disruption for the business itself. In this article, Zurich Nordic’s claims expert Tomas Näsberg shares his insights on Contingent Business Interruption insurance and offers strategies to prevent such claims from arising.

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Many companies excel at managing their risks by proactively identifying and assessing potential issues before they escalate into actual losses. Their Risk Managers employ various loss control strategies to reduce business risks and prevent incidents that could result in insurance claims. However, many of these strategies primarily focus on their own properties, aiming to protect their assets and ensure smooth business operations without interruptions.

 

But when disaster strikes elsewhere, having only an internal loss prevention strategy is insufficient. Natural disasters like wildfires, hurricanes, and floods are becoming more frequent. While such events may be less common in the Nordics, many businesses operate globally and are often vulnerable to contingent business interruption (CBI) claims. So, how do you navigate and mitigate the risks associated with CBI?

 

The Risk Factors

 

Unlike a typical property loss that includes a business interruption component, a CBI claim is generally not triggered by physical damage to the insured's own property or premises. Instead, it arises when a supplier experiences a loss that adversely affects their operations. This, in turn, impacts the supplier's ability to deliver a crucial component or the company’ capacity to purchase the usual quantity of goods. Consequently, the insured entity faces disruptions in its business activities due to these external factors, rather than direct damage to its own assets.

 

There are several critical areas that can make a business vulnerable to CBI claims. These include, but are not limited to, the following:

 

  • Dependence on a limited number of suppliers for essential components or materials.
  • Reliance on a small group of customers for the majority of sales and revenue.
  • Lack of diversification in the supplier base, leading to heightened risk if one supplier fails.
  • Geographic concentration of suppliers or customers, increasing exposure to regional disruptions.
  • Inadequate assessment and management of supply chain risks and vulnerabilities.
  • Absence of alternative sourcing strategies to address sudden supply interruptions.
  • Insufficient inventory management practices that fail to account for potential supply chain disruptions.
  • Limited visibility and monitoring of suppliers' operational health and stability.
  • Failure to develop and implement comprehensive business continuity and disaster recovery plans.
  • Overlooking the potential impact of regulatory changes on the supply chain and customer base.

 

How to Prevent the Risks

 

To effectively reduce the risks associated with supply chain disruptions and contingent business interruptions, businesses should implement several critical measures. These measures include, but are not limited to, the following:

  • Assess the robustness and weaknesses within the supply chain, emphasizing any areas of vulnerability.
  • Identify suppliers with limited sourcing options and seek alternative suppliers where possible.
  • Determine the potential impact on business income and additional expenses related to essential suppliers and customers.
  • Consider the geographical concentration of suppliers and customers, such as multiple suppliers being susceptible to a single weather event.
  • Create comprehensive business continuity plans that address potential supply chain interruptions.
  • Engage in tabletop exercises to prepare for scenarios where a key a supplier or a customer is unavailable for a prolonged period.

 

Zurich’s extensive experience in managing CBI claims has shown that companies with a pre-established strategy to address such situations are significantly more successful in mitigating losses. Effective actions include securing deliveries from alternative suppliers, implementing overtime work, and utilizing premium freight services for both inbound and outbound logistics. These measures help ensure continuity of supply to customers, thereby minimizing the impact of disruptions.

 

 

In an interconnected world, a business is only as strong as its weakest link. For further information on how Zurich Nordic can help your company build resilience against contingent business interruption, please contact Tomas Näsberg, Head of First Part Claims.