Last Friday, I had the chance to catch up with Marsh’s Gary Lynch, who serves as Global Leader of his firm's Risk Intelligence Strategies and Resiliency Solutions group. The call followed a post that I wrote earlier in the month noting that Marsh had parted ways with Chainlink. It turns out that in that post, I got some things right and some wrong.
Marsh has, indeed, gone down a separate path than Chainlink, opting to focus entirely on consulting and underwriting activities (rather than selling research services and reports). As a result of this change, Marsh has now established a smaller research team focused on different efforts than those pursued following the Chainlink acquisition. But the rumors of Marsh's supply risk demise are, fortunately, greatly exaggerated.
In fact, Marsh has achieved some major milestones with its supply risk practice in recent months. These include working closely with AIG in the US and Zurich in Europe (and potentially other geographies) to create specific supply risk insurance products. Thanks to these efforts, Marsh's clients now have access to $125 million in capacity for insuring supply risk elements that encompass the following three categories: named suppliers, named supplies or named services (e.g., logistics). One of the major steps to get the carriers over the fence to underwrite these products was the ability to create a measurement system for risk in addition to proving the size of the market based on actual need for such insurance products in the first place.
Marsh is currently in the process of underwriting their first policy in a "named supply" area for a client. In my view, this first policy marks a huge milestone in the history of supply risk management. By way of comparison, I believe that insurance contracts such as this could become as important to the market as the ability to hedge or trade commodity pricing elements with counterparties (or third parties) as part of the contracting process. But the supply risk insurance underwriting process is not as simple as picking up the phone and calling your broker. It requires an insurance assessment by Marsh.
As part of the assessment, Marsh insists that the evaluation process include, at minimum, the most senior executives in charge of procurement, logistics, and supply chain inside a company. As an enticement to get these folks in the room together, one wonders whether or not the underwriters in question are resorting to free hunting junkets as part of the package. In all seriousness, we should congratulate Marsh on blazing the supply risk management insurance trail. Their retrenchment around underwriting and consulting -- and away from paid research -- seems logical in the face of the rising need for supply risk management products and the challenges of research-based business models in an economic downturn.
- Jason Busch