Business Continuity: Questions asked about insurance cover.

Are supply chains to be regarded purely as business risks or is insurance a practical option? Airmic members are proving reluctant to acquire cover against supply chain disruption despite the availability of products, according to technical director Paul Hopkin.

The association will publish a report this month on the insurance currently available for this type of risk and the factors inhibiting potential customers. It will be based partly on a questionnaire sent to risk managers, as well as discussions with buyers, their insurers and brokers.

Business Interruption is consistently at or near the top of risk manager ‘stay awake at night’ issues whenever Airmic consults its members.

Last year’s flooding in Thailand and the tsunami in Japan highlighted both the vulnerability of supply chains and, in the view of some risk managers, the inadequacy of existing risk transfer arrangements. It is widely agreed that many insurance policies failed to pay out as well as their buyers had expected.

“Our aim is to get a dialogue going that will help to align the insurance market’s supply chain risk offering with the needs of our members,” said Hopkin. “The jury is still out as to the value of buying cover.”

Buyers, he said, had identified the level of effort required to meet the data requirements of underwriters, lack of claims certainty and inadequacy of cover as factors holding back the market.

“I do believe that the obstacles we have identified can probably be cleared. It may just be a case of better communication,” he said.

An Airmic News roundtable on supply chains earlier this year revealed alleged shortcomings both in the performance of insurers and the way companies approach supply chain risk.

“Exposures such as political risk and natural catastrophes, which are second nature to risk managers, are not embedded in the thought processes of their supply chain colleagues,” commented Nick Wildgoose, global product manager at Zurich.

Chris McGloin, vice-president (risk management and insurance) at Invensys observed: “If you were to write down what a client wants from a risk mitigation strategy, there’s frankly no link between what the client wants and what the insurer can provide.”

The roundtable concluded that there was a need for greater education and dialogue on this very important subject – something that Airmic now hopes to achieve.

The December edition will carry a full report on Airmic’s supply chain insurance report

Our aim is to get a dialogue going that will help to align the insurance market’s supply chain risk offering with the needs of our members
Paul Hopkin
Airmic Technical Director