Supply Chain Risk From an Insurance Provider’s Perspective: “The Shot Heard Round the World”

I was recently at an analyst event for a software company and sat across the table at a breakfast with a technology researcher who covered the market for insurance companies. I asked the analyst, who had spent over 20 years in the industry, what it was like to look at solutions from an outsider’s perspective and what trends she sees as shaping the market.

Almost on cue, the topic of discussion shifted from underwriting and claims management to that new topic of general procurement and finance interest: supply chain risk management. Given her generalist insurance background, I had no idea what to expect when I queried her on the subject, but what I heard back was as expert – or more – than anything I’ve heard from a non-insurance perspective.

Here are a few of the highlights from the conversation:

  • The “shot heard round the world” from an insurance perspective for supply chain risk was the flooding in Thailand – the reason being that the insurance payouts ran into the billions of dollars for business continuity insurance related claims across industries (automotive, high tech, etc.)
  • The flooding touched off the realization that few companies were aware of risk below their tier one supply chain – a new topic of focus now for the insurance industry, procurement, and supply chain organizations.
  • The insurance industry makes their money on being able to quantify and assess risk – and then underwrite or have others underwrite the coverage covering it that should predictably assure a profit over time and over a large enough pool. Until the major focus in looking at supply risk recently and the range of claims associated with it, the industry had not captured enough information to accurately assess and look at supply risk at scale. This is now changing.

Check back in the next couple days for a post on criteria that insurance providers consider in underwriting. In the meantime, I encourage you to read our research on supply chain risk management (see Related Articles).

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