Research quantifies financial cost of business interruption linked to exclusion zones

09 Apr 2021

Business interruption losses are highly sensitive to the size of an exclusion zone set up by emergency responders after a major disruptive event, such as a terrorism incident or other civil commotion, according to new research by Australian Reinsurance Pool Corporation.

The application of exclusion zones can result in up to 10 times the insured loss expected from physical damage to an affected area, due to the impact of business interruption, including lack of access.

The findings are contained in a new research paper: Exclusion Zones and ARPC’s Interaction with First Responders by ARPC in conjunction with Finity Consulting and FPL Advisory. The research paper draws on ARPC’s terrorism catastrophe models to analyse the economic impact of exclusion zones of various sizes set up after a major disruptive event.

“Exclusion zones are a necessary tool to protect the public, stabilise property and assist the post-investigation process, but it’s important to understand that the size of, and duration of, an exclusion zone will impact businesses’ ability to operate,” said Dr Christopher Wallace, ARPC CEO.

“It is also worth noting that about 70 per cent of small-to-medium enterprises (SMEs) are uninsured for interruption to their businesses from exclusion zones, so business owners could be left to bear these costs if a disruptive incident prevents access to their premises,” Dr Wallace said.

ARPC has used this analysis as the basis for many discussions with State and Territory Police over the past two years.

In summary, the paper:

• provides an estimate of physical damage areas for various bomb blasts or biological and chemical attack scenarios and estimates the financial costs of various exclusion zones in terms of their potential business interruption losses.
• outlines several industry-accepted exclusion zone models and analyses these in conjunction with ARPC’s terrorism catastrophe models, to quantify the potential impact on financial losses in major Australian cities.
• does not make recommendations on appropriate sizes for exclusion zones.

For media inquiries, please contact ARPC CEO Dr Christopher Wallace on (02) 8223-6777 or [email protected]