Considering the View of Insurers and Underwriters: The True Cost of Supply Risk

It could be argued that anyone focused on supply risk as a current career in procurement is still going to school on the subject. After all, few companies had full-time staff dedicated to supply chain and commodity risk even just a decade ago. Yet those in the insurance ecosystems (underwriters, brokers, re-insurance, etc.) have considered risk management -- and the pricing of risk -- as their core business for centuries, going back to insuring original trading companies and sources of supply during the time with the British Navy secured the global trading seas. Given the importance of the insight those in the insurance market can bring to supply risk, you can imagine how hungry we are for information and insight these experts can bring to the commodity, country, supplier and supply chain risk equation.

Insurance Insight recently ran a fascinating article providing a real insurance industry insider's perspective on supply risk. The subject of the interview, Peter Solloway, business development manager for Continental Europe at FM Global, is quoted specifically on the French market, though nearly all of his observations are directly relevant for supply risk analysis across Europe and the broader global market. Solloway suggests in framing the discussion that the French market has suffered "heavily [from] natural catastrophe losses...[impacting] French companies...[with] exposures elsewhere around the globe." Specifically, Solloway points out, "supply chain issues are emerging...not so much from the traditional fire losses but more from supply chain issues in [those areas] prone" to natural disasters.

The challenge is that "liability has really grown," and while there "was already a level of awareness of this...it was [not] at optimum levels." Solloway then observes that the role of the risk manager is becoming more important and such professionals "are registering a need to understand interdependencies and this is at board level." In planning for supply risk disruptions due to natural disasters and country/supplier specific issues, it is more critical than ever to consider not only the risk of "underinsurance" but also general "capacity" of supply and products. Figuring out how long to cover for potential disruptions is also an important question.

In summary, in "the large risk sector," Solloway suggests, "it is most unusual to find a company without a supply chain risk exposure and complexity of supply chain risk is an area of risk concern." In addition to insurance products that transfer risk to a counterparty for a premium, we would encourage all companies to evaluate supplier risk-related programs to consider the right technologies and internal skills required to proactively mitigate and management supplier and supply chain risk. A selection of our library on the topic includes the following papers and briefs which we encourage Spend Matters readers to consider in their own research efforts:

Leveraging Supplier Management Platforms for Multiple Goals: Risk Reduction, Supplier Diversity and CSR
Supply Risk Management – Segmenting the Technology and Content Landscape and Choosing the Right Category of Solutions
Beyond Basic Scorecarding – Supplier Performance and Development Approaches to Drive Competitive Cost and Risk Advantages
Developing and Maintaining Accurate Supplier Data: Lessons from Personal Hygiene to Overcome Dirty Supplier Information in Finance and Procurement

- Jason Busch

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