Supply chain risk mitigation needs work on both sides of the divide

There was some criticism of the insurance market’s response to buyers’ supply chain needs but also an acceptance that risk management must carry out due diligence on the exposures. The leading lights also gave some revealing insights into how they uncover and manage supply chain risk. Hans-Jürgen Allerdissen, Managing Director at Deutsche Verkehrs-Assekuranz-Vermittlungs, the risk management company of the German railway organisation Deutsche Bahn, said that for non-manufacturing companies like his, non-physical business interruption, as occurred as a result of many of last year’s natural catastrophes, is not such a big deal. The risks posed by ever expanding global supply chains are also much more of a concern for manufacturers, he continued.hideFor his rail firm, the switch to renewable energy supply and the need to ensure a constant supply of energy is a much more significant risk. “This affects us in our core activity; the operation of electrically-driven vehicles. However, a blackout may also lead to claims by our clients when supplies are no longer guaranteed. Service providers need to make service level agreements. In the area of just-in-time-delivery the client will test if the providers are to blame for the delay or if they violated specific clauses in their contract, which often exceed the scope of legal liability. Thus contract management is of considerable importance since pure financial losses are often not covered by insurance policies,” he told Commercial Risk Europe. And Mr Allerdissen was critical of the insurance market’s response to buyer needs in this area and for broader supply chain risks. “The insurance industry has not properly accompanied and assessed clients’ risk environment over the past five to ten years when it comes to commercial cover. We have a lot to catching up to do. It may sound slightly cynical but companies often have the impression that they are guinea pigs for the insurers’ business models. Insurers say that they do not have enough data to calculate new forms of cover. So we have to collect the information about losses so that insurers can avail their business of any risk,” he argued. Gregor Köhler, CEO and President of Pallas Versicherung, the insurance arm of chemical giant Bayer, said that for his firm supply chain risk is a global issue. Before Bayer decides to move production to a new market it ensures it fully understands the pros and cons of such a move so that it remains sustainable in the long run. But insurance is also useful tool for the mitigation of supply chain risk, he added. “We’re well prepared globally to analyse, monitor and transfer supply chain risks into insurance solutions and routinely do so. The challenges Bayer faces in that respect are pretty much the same with any country we access for the first time. Of course, there are clear differences between Brazil and India, as well as between India and China. But overall, there are certain patterns and we have come up with methods to cope with them,” he explained. “The key to our risk management is that we communicate closely with our subsidiaries and thereby know precisely where every single company’s exposure lies,” he added. Sabine Segor, Head of Risk & Insurance Management at Hugo Boss, agreed that supply chain analysis is key in the battle against supply chain risk. The first step is to assess the consequences of a failed delivery from every individual supplier, she said. This analysis leads to important and sometimes surprising findings that help risk managers to strike a good balance between production costs and the potential risks within a supply chain, continued Ms Segor. “Operative units have very detailed information about production capacity and possibilities for relocation. However, very often this data is not linked to microeconomic operating figures like margin contribution of lines of products,” she said. Insurance management can play an important role by helping to analyse default scenarios, stressed the risk manager. “This information in turn is the basis for finding the best possible insurance cover.” Alexander Mahnke, CEO of the Business Unit Insurance at Siemens Cross-Sector Financial Services, said that supplier diversification is one option to help prevent worst-case scenario supply chain failure. Global expansion also brings into question the issue of globally compliant insurance programmes, he continued. A big issue for companies that operate outside of major economic zones is increased regulation that attempts to protect local insurance markets, he said. “Being active in countries outside the European Union or the United States, we certainly see that finance and insurance markets may have a tendency to be more regulated in order to protect the country’s insurance market from foreign insurers,” said Mr Mahnke. “This means that the organisation and implementation of international insurance programs, including the ‘right’ purchase of local policies, will continue to be of importance. A number of years ago, we became one of the first companies to look at ‘compliant’ international insurance programs and will continue to do so. I think that this will remain one of the most important topics in our market for many years to come.” Hans Jörg Schill, Managing Director at Airport Assekuranz Vermittlungs-GmbH, the captive broker for Frankfurt Airport—Fraport AG, said that expanding into new markets always has to be accompanied by an adequate understanding of the legal and political situation in the country in question. “We had to learn this the hard way in Indonesia when we were expropriated overnight. We are better prepared now for situations like that,” he said.

Supply chain risk mitigation needs work on both sides of the divide

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