Although more organisations reported partial or full insurance cover for supply chain disruption last year, a growing number fear that the insurance market won’t meet their needs going forward, according to a poll by the Business Continuity Institute (BCI).
The BCI’s Supply Chain Resilience Report 2021 is based on a survey of individuals, including risk managers, at organisations across the world. The survey found that of those organisations able to quantify their supply chain and business interruption losses last year, 76% reported full or partial insurance coverage.
The BCI notes that this was a “significant” uplift from 2019, when just 57% of respondents to the annual survey reported the same level of coverage.
The number of organisations reporting that all losses were insured last year fell a touch to 10%, from 12%. But fewer organisations had no cover in 2020, down to 14% from 29%.
However, the survey found that a number of organisations were left without protection after clauses in their policies provided no cover for pandemic-related scenarios.
Although the biggest reason for not being covered by insurance in 2020 was organisations taking a risk-based decision and keeping supply chain losses on their balance sheet (14%), next came Covid-19=related clauses denying payouts (13%).
The BCI notes that the survey was carried out before the UK ruling on non-damage business interruption, which found in favour of policyholders. And other similar cases are also being brought in other parts of the world that may secure further coverage for insureds. This may see the number of insureds denied coverage because of pandemic clauses fall.
The survey also found that 8% of organisations surveyed weren’t covered for losses because they only had insurance for traditional physical damage events, similar to 2019, and 9% were unaware of non-damage supply chain covers.
The BCI says because the financial impact from supply chain disruption was “extreme” for many organisations in 2020, some will now be looking for insurance cover to mitigate future financial losses.
But it adds that specialist supply chain coverage is still fairly limited in the market and, with insurers reluctant to payout on Covid-19-related claims in 2020, many organisations feel there are insufficient products in the market to cover the risk.
The survey showed that while a quarter of respondents feel the insurance market has enough products tailored to supply chain needs, 36% said it does not.
This a big rise on the 16% that said there were not enough products in 2019. The BCI says the 20-percentage point increase is indicative of increasing demand for specialist supply chain cover as a direct result of Covid-19.
Insurers, of course, are now busy reviewing their polices and cover as a result of the pandemic. The BCI therefore advises all organisations to review their policies and check what cover will be provided going forward.
“Whilst some organisations may not have been prepared for the pandemic, insurers will already be drawing up new policies and amending terms and conditions of existing ones. One interviewee highlighted that now is the time for organisations to be pushing the insurance industry for more products and better limits on existing products,” it states.
They survey also finds that more organisations suffered supply chain disruption in 2020 than any time in the last 12 years, with Covid-19 the main cause and having a big impact on Tier 2 and beyond.