contingent business interruption

Contingent Business Interruption: Managing Risk in the Supply Chain

Supply chain management and supply chain risk management are two separate but equally important ideas when the topic is contingent business interruption. Supply chain managers are focused on optimizing the supply chain and lowering costs, supply chain risk managers are looking at the supply chain and extrapolating the potential costs to the business if the chain experiences interruptions.

Do you have a professional supply chain risk manager on your team?

A whitepaper from Crain’s, Contingent Business Interruption: How to assess supply chain risks, secure coverage and ensure claims are paid provides some key insights and strategic points for anyone who is concerned about their supply chain. The paper notes the 2011 Tohoku earthquake in Japan and flooding in Thailand in the same year that disrupted business globally, using these examples and others to caution businesses about disaster planning, the need for adequate insurance, and the nature of coverage traditional insurers are willing to provide as they strain under the pressure of so many recent disasters.

Indeed, the frequency of natural disasters and the growing cost of dealing with these disasters is becoming a serious issue. A recent report published by the U.S. Government Accountability Office (GAO), notes that, “Disaster declarations have increased over recent decades and the Federal Emergency Management Agency (FEMA) has obligated over $80 billion in federal assistance for disasters declared during fiscal years 204 through 2011.” The costs to private insurers is proportionately high, causing coverage premiums to increase – while reducing coverage options for business.

Your self-insured risk

Even if you believe you’ve thought through every scenario, disaster can impact your business. Now is a good time to reassess your coverage and seek out some advice on what type of risks you face. The landscape has changed over the last few years, and you should know where you stand.

Most importantly, you should know and understand if the contingent business interruption insurance you carry is enough. If production of a parts factory in Malaysia were shut down for six months, what would the impact to your business be? Is your policy language such that you could collect for the damages caused to your business? And is your insurer willing to continue providing your business with the same type of insurance you’ve always had? Talk with experts to be sure you’re asking the right questions.

Covering your risk

We are often contacted by clients who want to evaluate or re-evaluate their risks as they look deeper into their supply chain. We work with them to understand how their supply chain is structured, and we bring in experts who can help determine where the greatest risks are. When appropriate, we help companies develop a safety net with a Captive insurance company – an insurance company they own that can insure them against eventualities like a flood halfway around the world that impacts their supply chain. If we can help you understand these issues, please feel free to get in touch.