Supply Risk Insurance — Learning the Basics About Underwriting and Products

In an article that I linked to the other day, I was pleasantly surprised to see another author talking about the latest supply risk products designed to mitigate exposure to risk to hit the market -- insurance policies. This is a topic we've tackled on Spend Matters previously, yet I don't get many questions about it from practitioners (nearly all of whom seem consumed by putting in place programs to monitor the stability of their most strategic suppliers). Yet insurance can be a useful part of a broader supply risk management portfolio strategy. In fact, the more advanced your company is when it comes to supply risk mitigation and monitoring, the less expensive a policy will most likely be given how the underwriting process takes into account current programs and exposure.

The above-linked article from Continuity Central suggests that general business interruption (BI) insurance will not always cover "supply chain related losses" because "force majeure clauses often apply to events and disasters which cause supply chain disruption." Yet specific supply risk insurance policies can "indemnify companies against a wide range of loss-causing threats, such as political and country risks; infrastructure and communications failures; and breakdowns in just-in-time delivery strategies." Both Zurich and Aon provide such policies today (but not in all countries), however it's brokers like Marsh who go through the detailed assessments and diligence with clients in the underwriting process.

Our own research suggests that those policies that Marsh can evaluate and broker include "named suppliers, or named services (e.g., logistics)." Yet all companies going through the evaluation process must go through an insurance assessment by Marsh that includes, "at minimum, the most senior executives in charge of procurement, logistics, and supply chain inside a company." But that may not be such a bad thing, despite the time invested (and even if a company ends up not pulling a trigger on the policy itself). Getting all members of the supplier-facing organization together is a critical first step for companies to avoid evaluating supply risk in a vacuum.

Jason Busch

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