BI insurance protection ‘wafer-thin patchwork’ for supply chain risk

A survey of supply-chain risk decision makers at large companies around the world by WTW has revealed that most suffered larger-than-expected losses during the supply-chain crisis, many are still recovering, and most are seeking to boost resilience by reducing supply-chain complexity. But business interruption insurance protection is a “wafer-thin patchwork”, with the vast majority of respondents having no specific BI insurance cover for their supply chain risk, and a lack of insurance solutions highlighted as a major challenge, the report finds. WTW’s Global Supply Chain Risk Report 2023 found that almost two-thirds (65%) of business leaders said losses related to supply chain were higher or much higher than expected over the last two years. As a result, 65% have made improvements and a further 18% have completely transformed their approach to supply chain management in response to the pandemic. Worryingly, more than three-quarters (77%) said they lacked the data and knowledge to understand their supply chain risks, and only 12% said they had identified all the data they need to manage supply chain risks with robust processes to gather it. Nearly three-quarters said that supplier concerns about proprietary knowledge or intellectual property make it difficult to get full transparency in their supply chain. The survey found that 89% think insurance for supply chain risks is mission critical or that some cover is necessary, but almost as many (80%) said a lack of insurance solutions was among the greatest challenges to addressing their risks over the next three to five years. WTW says this may reflect the lack of cover for pure economic losses resulting from shortages and delays in most property and marine cargo policies. Only 17% of respondents said they had specific insurance to cover business interruption risks in their supply chain, although 53% thought it was covered by other insurance. And just 25% feel confident they have sufficient cover for the impact of extreme weather on their supply chain. “The pandemic highlighted the gaps in insurance cover, with pure economic losses resulting from shortages and delays not covered by property and marine cargo policies,” says WTW. “Managing these exposures is a major issue for companies, especially in a market that is likely to harden further in difficult economic conditions over the year or two.” Economic uncertainty (32%) and inflation (26%) are among the leading factors underlying supply chain risks, while cyber risks are believed to have the deepest impact on supply chains rated by 34% as a high impact and 54% as medium. The survey found that continuing shortages of raw materials (39%), logistics and warehousing (35%) and components (33%) are all among the top supply chain factors that will impact businesses over the next two years. “Businesses have learned from the supply-chain crisis and are actively working to increase their resilience to future shocks, but much more remains to be done,” said Hugo Wegbrans, global head of broking at WTW. “They are more aware of their vulnerabilities, and are taking action to deal with them, but they are often hampered by an inability to get hold of detailed data, or to achieve full visibility through all the links in the chain.” The large majority recognise that insurance has a role to play, Wegbrans said, which represents a growth opportunity. “At the moment, insurance to cover purely financial supply-chain losses provides only a wafer-thin patchwork of protection. Major coverage gaps were exposed by the pandemic, and companies remain un- or under-insured,” he said. “Only a quarter feel confident they have sufficient coverage for the impact of extreme weather on their supply chain, for example, and fewer than one in five have specific policies to cover supply-chain BI. Businesses in all sectors need to transfer their significant exposures to achieve true resilience.”

BI insurance protection ‘wafer-thin patchwork’ for supply chain risk

Lack of insurance solutions a major challenge, WTW survey finds

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