The industry is certainly aware ofand gaining knowledge about supply chains—but the products beingoffered aren't necessarily keeping up with the risks, some expertssay. 

Warren Meigs, deputy property executive for the U.S. and Canadaat AIG Property Casualty, said during Advisen's Property InsightsConference on June 11 that supply-chain exposures are notunderstood well enough and that contract wording is notuniform.

Gary Love, vice president and staff operations underwritingmanager at FM Global, agreed. During a panel discussion on thetopic of supply chain risk and contingent business interruption,Love said understanding the true risk of second-, third- andfourth-tier suppliers is a “daunting, daunting task,” and hisfeeling is that the industry has not yet stepped up toprovide products to cover the types of losses laid bare bysuch recent events as the earthquake and tsunami in Japan, floodingin Thailand, and Superstorm Sandy in the NortheastU.S. 

“At the end of the day, underwriters are worried aboutaggregation,” he said. “They want assurance”—which isn't easy,considering the vast interdependencies of companies. 

Jill Dalton, partner at consulting firm Dempsey Partners, said aconfluence of factors—namely the economy, outsourcing, and weatherand other types of loss events—have created a perfect storm todrive up risks associated with complex supply chains, as well asthe need for products to cover them. Coverage is available butinconsistent, she said, and limits are low. Losses are difficult toquantify: What happened at a supplier? What was the peril? Was thepolicy triggered? 

The supply chain/CBI solutions in the marketplace are not beingbought by clients, according to Duncan Ellis, managing director andU.S. property practice leader for Marsh. He called the take-up rate“disastrous”—as in only a handful of contracts have been signed byone leading insurer, for example. 

David Shluger, strategic risk consultant at Zurich, said theindustry's current role as a strategic risk consultant is working,and clients are happy with assessments provided, outlining therisks along the supply chain and advising on matters such aslocations of distributors—but potential clients will take the planson how to mitigate losses and put them into action without buying arisk-transfer product. 

Dalton adds supply-chain and CBI products are in an evolutionarystate, just as employment practice liability was when it was firstintroduced to the marketplace. No one bought EPLI coverage at thestart, but it is now popular. The future of supply chain products“will get better,” she added.