Supply chain insurance

A new insurance product by If

What do you do if your supply chain breaks down?

The risk of a supply chain glitch is a threat that has risen with the increased demand for just-in-time delivery, higher storage costs, and hazards beyond the company's control. This risk is ever present – without there having to be any physical risk of damage to any of the insured party's interests. Modern supply chains may be flexible and cost-effective, but they are also more vulnerable to disruption.

Whilst business interruption insurance products are governed by a physical loss within the remit of the insured party, supply chain insurance is not. For many businesses, comprehensive business interruption coverage is increasingly being seen as an essential part of today's insurance policy.

Supply chain – what is it?

Definitions of “supply chain” almost universally encompass the following three functions: supply of materials to a manufacturer, the manufacturing process, and the distribution of finished goods through a network of distributors and retailers to a final customer. Companies involved in various stages of this process are linked to each other through a so-called “supply chain”.

To facilitate the flow of products, infor mation is shared up and down the supply chain, i.e. with suppliers and clients. This sharing of information enables all parties to plan appropriately to meet current and future needs. The more that companies within a supply chain can integrate and coordinate their activities, the more likely they will be to optimise the flow of goods from supplier to customer and react effectively to changes in demand.

Causes of disruption loss

Global supply chains are increasing the severity and frequency of business interruption claims, with the average large business property insurance claim rising to millions of dollars and many thousands of claims per year. Increased interconnectivities and interdependencies between companies, as well as lean production processes, have contributed to both the rise in business interruption claims and new risks to businesses. The main causes of business interruption loss globally are adverse weather, unplanned IT or telecoms outage, transport network disruption, earthquakes/tsunamis, as well as volcanic ash clouds, insolvency, civil unrest and fire.

No physical damage

As mentioned briefly above, Business Interruption (BI) and Contingent Business Interruption (CBI) insurance products have been on the market for many years. But in order to trigger cover, there needs to have been physical damage – such as an industrial fire – that triggers the BI loss. When it comes to Supply Chain Insurance it will rather be triggered by an external event, beyond the control of the insured party.

The If touch

What sets the If product apart from other Supply Chain products currently on the market is that If has simplified the calculation of the Business Interruption loss by having a pre-agreed daily indemnity that will be paid out (less pre-agreed deductible days) – up to a number of pre-agreed maximum number of days (which can be, for example, 90 days or 180 days). As this is all pre-agreed, there is no need for what are usually quite complex and time-consuming business interruption calculations.

The product is targeted to work as a supply chain disruption (financial) safety net so that disruptive events will not completely ruin a business. Whilst it might be a tool that produces a rough estimate, it will ease the most severe and imminent business/supply chain-related (financial) concerns.

If has already seen a keen interest in this product and hopes it will be an attractive solution for medium to large enterprises to safeguard their continued business operations.

Article by

Tony Schröder

Manager of Major, Complex and International Property Claims Team, If