All Talk, No Action on Supply Chain Risk

Supply Chain: TankerFrom a number of conversations I have had of late, there is no doubt that supply chain interruption from both a property damage and non-property damage perspective, is a key talking point.

Risk Frontiers Survey 2011: Worry List

SOURCE: Commercial Risk Europe, Risk Frontiers Survey 2011

At the start of FERMA proceedings last month, the Association’s President Peter den Dekker called on insurers to find a solution to the contingent business interruption (CBI) coverage dilemma. He referenced a recent survey of European Risk Managers, which found that one of their two top concerns was related to protection from supply-chain disruptions (the other was reputation risk).

A recent report by supply management experts Ardent Partners indicated that only 29% of procurement professionals interviewed had a clear understanding of the enterprise spend across their entire supply chain.

Putting the Cart Before the Horse?

My concern is that there is there is a great deal of enthusiastic talk, but very little action. Insurers are beginning to release more risk transfer products into the marketplace aimed at providing coverage for non-damage business interruption, whilst others attempt to develop a bespoke solution as each opportunity arises.

The good news is that carriers seem to be showing more appetite to underwrite these risks and provide higher limits, but at the same time their data requirements can be prohibitive due to the difficulty prospective clients have in achieving a detailed understanding of the risks and inter-dependencies across the breadth and depth of their supply chains.

Moreover, those companies that commission detailed risk assessments complain about the length of time the analysis takes to complete on top of the time it takes for carriers to do their own due diligence.

In many cases, once the business interruption (BI) exposure has been assessed, the aggregate limit provided by the product is not enough. It is not surprising therefore that only a few policies have been sold leaving many companies in a precarious position in terms of taking a potential serious hit on their balance sheet following the loss of a key supplier.

The Market Needs a Catalyst

The market needs a catalyst, a mechanism that uses innovation and pragmatism, which will facilitate and speed up the risk assessment process but, at the same time, provide quality data that will increase carrier confidence and allow them to create the level of capacity that is needed.

Greater collaboration is also needed between insurer, broker and buyer to use technology and data to achieve a better understanding of potential loss scenarios and the resulting effects, assuming that all existing risk management controls are in place and fit for purpose.

Finally, stakeholders need to realize that we need to follow a process: Help clients achieve a better understanding of their exposures and then provide them with the best solution.

About Tom Teixeira

Tom is the London-based Practice Leader, Integrated Risk Management, where he focuses on aerospace, oil and gas, mi…
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