17 May 2012

Risk managers detect a chill wind in the supply chain

Published:: 06 February 2012
Channel:: The Blog

Europe’s big freeze has been causing chaos all across the continent, with widespread disruption to transport and infrastructure networks – and in some places even deaths.

Rome saw its first snow for 27 years, tens of thousands of homes were left without electricity. Poland and Ukraine been particularly badly hit, and Bosnia declared a state of emergency with avalanches and strong winds cutting off hundreds of villages.

It’s the latest in a series of natural phenomena that have disrupted supply chains around the world. A few months ago it was flooding in Thailand and before that the terrible earthquake and tsunami in Japan.

In the light of such events it is hardly surprising that the ability of insurers to respond has come into question. A recent survey on supply chain risks by the Federation of European Risk Management Associations found that only 14 per cent of risk managers felt that existing coverage and capacity were adequate.

Forty-six per cent said coverage and capacity were not sufficient, while 28 per cent found conditions too restrictive and 26 per cent said the cost was too high.

FERMA found that only half said they insured against contingent or non-damage business interruption.

Many of the respondents were from the manufacturing sector and more than half said they were very concerned about continuity of supply from direct suppliers. 36 per cent said they were somewhat concerned. Disruption to suppliers’ sources was also an issue but less acutely: 35 per cent said they were very concerned and 48 per cent somewhat concerned.

Twenty-one per cent or 32 risk managers said their business had suffered a material breach in their supply chain over the past two years. The Japanese earthquake and tsunami in March 2011 were the principal causes, followed by the eruption of the Iceland volcano Eyjafjallajökull in 2010, which caused widespread air transport disruption.

The past few years have seen supply chains growing longer and more complex – and at the same time the demand for reliability and continuity has continued to grow.

But the risk of disruption has also grown and the need to manage that risk is greater than ever. The FERMA survey highlights the demand for insurance products that meet these needs more effectively. Can the insurers respond?

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