The industry is certainly aware of and gaining knowledge about supply chains—but the products being offered aren’t necessarily keeping up with the risks, some experts say.
Warren Meigs, deputy property executive for the U.S. and Canada at AIG Property Casualty, said during Advisen’s Property Insights Conference on June 11 that supply-chain exposures are not understood well enough and that contract wording is not uniform.
Gary Love, vice president and staff operations underwriting manager at FM Global, agreed. During a panel discussion on the topic of supply chain risk and contingent business interruption, Love said understanding the true risk of second-, third- and fourth-tier suppliers is a “daunting, daunting task,” and his feeling is that the industry has not yet stepped up to provide products to cover the types of losses laid bare by such recent events as the earthquake and tsunami in Japan, flooding in Thailand, and Superstorm Sandy in the Northeast U.S.
“At the end of the day, underwriters are worried about aggregation,” he said. “They want assurance”—which isn’t easy, considering the vast interdependencies of companies.
Jill Dalton, partner at consulting firm Dempsey Partners, said a confluence of factors—namely the economy, outsourcing, and weather and other types of loss events—have created a perfect storm to drive up risks associated with complex supply chains, as well as the need for products to cover them. Coverage is available but inconsistent, she said, and limits are low. Losses are difficult to quantify: What happened at a supplier? What was the peril? Was the policy triggered?
The supply chain/CBI solutions in the marketplace are not being bought by clients, according to Duncan Ellis, managing director and U.S. property practice leader for Marsh. He called the take-up rate “disastrous”—as in only a handful of contracts have been signed by one leading insurer, for example.
David Shluger, strategic risk consultant at Zurich, said the industry’s current role as a strategic risk consultant is working, and clients are happy with assessments provided, outlining the risks along the supply chain and advising on matters such as locations of distributors—but potential clients will take the plans on how to mitigate losses and put them into action without buying a risk-transfer product.
Dalton adds supply-chain and CBI products are in an evolutionary state, just as employment practice liability was when it was first introduced to the marketplace. No one bought EPLI coverage at the start, but it is now popular. The future of supply chain products “will get better,” she added.