November 13th, 2013

Supply Chain Risk Management and (Re)insurance Solutions

Posted at 1:00 AM ET

Technological advances have resulted in business being conducted all over the world in an instantaneous manner, meaning supply chain failures can significantly impact companies’ revenue, credibility and reputation. Companies are therefore now far more exposed to external risks than ever before. This has raised (re)insurers’ concerns over the ability of the market to understand the risks that are being underwritten and the viability of offering business interruption/contingent business interruption (BI/CBI) cover. Indeed, some (re)insurers have taken the view that risk management strategies at the company level need to be improved before coverage can be offered.

Companies therefore have a responsibility to check a supplier’s (and their suppliers’) own business continuity plan during the selection process. Companies can also reduce their supply chain risks by gaining a better understanding of their chains, identifying and anticipating potential problems and taking measures to prevent them from causing significant disruption. For example, companies need to consider the risks as well as benefits of outsourcing to emerging nations. Diversifying the location of suppliers also limits the likelihood of one event taking them all out of commission.

Such action will help provide risk carriers with the necessary data to enable them to assess the specific risk to each company and establish adequate pricing and terms. It will also allow (re)insurers to offer the broadest possible coverage (beyond physical damage only). By implementing comprehensive risk management strategies for supply chains and offering underwriters all available information, companies are positioning themselves for the best BI/CBI coverage in the marketplace.

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