Supply Chain Insurance: Act Fast (If You Can Get It)

Here at Spend Matters, we've heard stories from numerous insurers and agents involved in the underwriting process for supply chain risk policies that getting coverage is becoming a more expensive value proposition -- and that's when an organization can get coverage at all (e.g., for a named supplier, supply, facility). The recent crises and disruptions throughout Asia -- from restricting the flow of the supply of rare earth metals to Japan last year -- have combined to make such products more costly, when insurers are even willing to consider offering them in certain high-risk markets like Japan, China and Vietnam. A recent article from Business Insurance provides some context and research to back up the anecdotal challenges we've been hearing about.

According to the above-linked story citing a survey of global insurance brokers, "the top concern facing their clients is the availability and pricing of coverage" and it is "particularly challenging for buyers with large natural catastrophe and supply chain exposures." The article suggests, "of the brokers surveyed, 96% said their clients are most concerned about price and availability of coverage, and 48% said their clients have significant concerns about managing risks with fewer resources." Perhaps not surprisingly, supply chain risk areas most "closely followed natural hazards as the risk that brokers feel their clients consider most significant, with 47% of brokers citing natural hazards and 42% citing supply chain risks." Moreover, one source notes "with insurance markets still discovering the actual cost of the Thai flood, buyers might face challenges getting the supply chain coverage they seek as the year goes on."

We've long been supportive of alternative means of reducing supply chain risk and closely monitoring traditional supplier risk metrics -- on-time performance, quality, geography, financial risk indicators, etc. Although supply chain insurance was largely a novelty and a small dimple on the broader face of global insurance until recently, we sincerely hope that the option to hedge risk exposure through specific insurance contracts tied to supply chain risk and disruptions remains on the underwriting table. At this point, all signs are pointing to the fact that when supply chain risk insurance is even available, such policy costs will be higher than ever. Like car insurance rates in New Jersey, however, there's a reason underwriters will be increasingly protective and selective as they consider supply chain risk products.

- Jason Busch

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