Businesses coping with a global environment, besides property and business interruption coverage, need insurance for unexpected events and actions by foreign governments, brokerage firm experts advise.

The comments by executives with Chicago-based insurance broker Aon came during a Web seminar by the company on “Trade Credit & Political Risk: Identifying Threats to the Supply Chain.”

The speakers were Peter Jordan and Mary Duhig, directors with Aon Trade Credit, Aon Financial Services, and Mike Giacobbe, financial and risk analyst for Aon.

Ms. Duhig noted that the world is gripped by more wars and events of civil strife than it suffered in the 1960s, and with the growth of outsourcing, the world has grown in its interdependence.

She said these factors have created a situation where violence or civil upheavals can have the effect of disrupting a company's supply chain or seeing the local government seize its foreign assets.

Mr. Giacobbe laid out several formulas that risk bearers can utilize to assist them in assessing their risk exposures at each stage of their supply chain.

He said the formulas would help the clients understand their risks better through construction of a loss model to illustrate how different losses could affect their organizations and determine the best insurance program for their exposures.

Mr. Jordan noted that there are three types of insurance vehicles commonly used to protect overseas risks. Traditionally, trade credit and property-business interruption have been the most common. While covering exposures that are typical to any business transactions, they do not apply to a government's whims or civil unrest.

A third option, supply disruption insurance (SDI), he pointed out, offers cover to a wide variety of risks covering economic loss that can occur from foreign government actions such as expropriation of property or decisions that can increase operating costs.

In one example Mr. Jordan offered, SDI applied to the costs involved when a supplier's parts were tied up in shipment after a vessel sank and forced closing of the Suez Canal. The shipper was forced to airfreight the necessary parts in order to fulfill the recipients supply needs.

Another advantage of the coverage, he pointed out, is that insurers often have more leverage with recovering losses, which are often a long-term affair, than if the insured had no coverage and tried to do it alone.

“As companies across the globe continue to seek new markets, corporate leadership will need to pursue more sophisticated approaches to supply chain risk management to ensure that critical assets and shareholder value are protected,” said Ms. Duhig, adding it is necessary for them to seek development of the tools to accomplish this goal.

A replay of the seminar is online at www.aon.com/us/about/events/web_seminar.jsp#tcpr.

Special Reports /

Experts Tell Firms How To Insure Global Operations

Related Stories

Recommended For You