On March 11, 2011, the Tohoku region of Japan was struck by a massive earthquake and tsunami that not only devastated a nuclear power plant and wreaked havoc on the island, but caused massive worldwide supply chain disruptions, pointing up the fragility of our interconnected world. The disaster caused an estimated $35 to $40 billion in insured losses and many businesses were not adequately protected, both in terms of insurance and risk management, according to the Insurance Information Institute (I.I.I.).
Our global economy puts more businesses at risk of supply chain disruptions. These don’t begin and end with natural disasters but can include industrial accidents; labor issues (strikes, shortages); production process problems; political upheaval, including war and civil strife; trade disputes; health and safety concerns; credit/cash flow problems; and supplier finances or solvency. It can take two years or more for companies to recover from a supply chain failure, according to the III.
Tom Teixeira, life sciences practice leader, Willis:
The main lessons learned were that there needs to be a better understanding of the breadth and depth of supply chains, the interdependencies and pinch-points and the related exposures, both from a property damage and non-property damage perspective.
John Dempsey, managing partner, Dempsey Partners:
According to a survey by Dempsey Partners, a forensic accounting, claims management and risk consulting firm, 55 percent of corporate risk managers and other financial executives feel the insurance industry needs to develop new products to help protect against supply chain risks. Sixty-one percent say they experienced such a loss in the last five years that led to a loss of earnings but only 30 percent recovered the losses with an insurance claim.
Oriol Gaspa Rebull, seismologist for Impact Forecasting, Aon Benfield’s model development centre of excellence:
Tohoku highlighted the technical limitations of catastrophe models and their ability to assess earthquake risk. This in turn triggered new collaborations between scientists and catastrophe modelers to help understand the effects of the earthquake and address the unexpectedly vast variety of research needed to develop an enhanced catastrophe model.
Gary Lynch, global leader, Marsh Risk Consulting’s Supply Chain Risk Management Practice:
From the events of Japan and other recent events—the flooding in Thailand and political unrest in the Middle East, for example—we learned that organizations can no longer simply assume anything when it comes to risk management, especially when third parties such as suppliers or contract manufacturers are involved. We also learned that there is still a lack of transparency within many organizations’ increasingly global, complex and interdependent supply chains; beyond the first tier of suppliers, distributors, and contract manufacturers, many organizations still do not know who contributes to these supply chains.
Linda Conrad, director of strategic business risk management, Zurich Financial Services:
The world is more global than before, but many companies have not adapted business processes to new emerging risks. In the last few years, firms have made a big effort to contain cost through sole sourcing and maintaining thinner inventory levels. Steps taken to drive cost out of the supply chain can often drive risk in.