Risk managers concede industry must work harder to understand supply chain exposures

Risk and insurance managers must work harder to fully understand their supply chain exposures and cannot expect insurers to take on their risk without putting in such work first, said Nordic risk managers taking part in our European Risk Frontiers survey, who warned that obtaining such information is not easy. However, the good news is that supply chain insurance can increasingly offer quality protection if companies can show insurers they have a good grip on their risk and can fully articulate their transfer needs. There has been, and continues to be, debate about whether supply chain insurance can offer companies the protection they need and whether data requirements demanded by insurers are feasible. Lennart Edström, vice-president – group risk management at AB Electrolux, told Commercial Risk Europe that his company’s supply chain is now adequately insured through very high limits, but only after a great deal of work to understand the risk. He said companies in general are failing to adequately understand and therefore manage supply chain risk, which leaves them in no position to bemoan the fact they cannot obtain related insurance cover. “I think many companies, including ours, need to take responsibility for their supply chain. We need to better map the risks. We cannot just go to the insurers for a high limit if we don’t understand the risk. You have to be able to explain your risks and interdependencies. You have to be on top of this when you go to the insurers and ask for high limits. I have seen when you do that they are willing to give high limits, but if you ask for carte blanche without that they understandably say no,” said the experienced risk manager. But he warned colleagues that obtaining such information if far from easy and advised them to drill deeply where they have the highest values at risk. “We have thousands and thousands of different suppliers. They are giving us raw materials, components, half-made products and complete products – the whole range. So we have started where we see the highest value and drilled deeply into those suppliers and the dependency on that component. You must drill down, but to get a complete, full picture of the supply chain would be an immense task. So we have a number of key suppliers where we have identified the exact maximum limit we need and then we have fairly high unnamed supplier cover for which we don’t need to drill deeper,” said Mr Edström. Melinda Johansen, general manager of group risk management at Denmark-based engineering group FLSmidth & Co, said supply chain insurance can offer quality protection but requires a lot of upfront work from the buyer. “To ensure the better cover, you have to have a better understanding of your risk to know what it is that you need to insure – it will be different from company to company,” began Ms Johansen. “But I have seen very customised supply chain insurance solutions where, together with the insurance company, the customer can define the specific triggers of the policy. This is a positive development and more customisable solutions are needed. This requires partnership because the insured needs to fully understand its risks and then the insurance company needs to be able to tailor cover to different needs,” added the Dane. A similar story about improving supply chain cover but only if risk managers have put in the effort, was told by other European Risk Frontiers participants. Tapio Huovinen, director of risk management at renewable wood biomass company UPM, said: “If you have a mature supply chain and enough info, you can have some interesting conversations on cover. But to get a reasonable quote from the market you must show that you understand your supply risks and are managing them. Only then will you get a reasonable quote. Insurers need a lot of data and it is sometimes hard to supply that.” While Anders Esbjörnsson, director of group insurance at construction firm NCC Group, said his firm has begun evaluating what is offer from the supply chain market and has quickly drawn similar conclusions. “I think the market today is quite good and you can get decent cover. However, how much cover and its quality all depends on the amount of information you can give insurers on your supply chain,” he said. Commercial Risk Europe will hold its Supply Chain Risk Management 2018 – Collaboration in a Connected World conference over two days in London on 10 and 11 December, to tackle key supply chain risk and insurance management issues. Supported by the Business Continuity Institute and UK risk management association Airmic, the event is free for risk professionals, and an early bird delegate rate of £500 (+VAT where applicable) applies for all other delegates. For further information please go to: www.commercialriskonline.com/event/scrm18

Risk managers concede industry must work harder to understand supply chain exposures

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