Global Supply Chain Drives Ford’s Need for CBI Coverage

With a manufacturing process that involves a global supply chain, automaker Ford has had layers of CBI coverage in place for years. The importance of that coverage, structured by Marsh, became apparent after the Japanese earthquake and tsunami. Although Ford can't comment on total claim payments, simply evaluating the magnitude of the loss took in excess of six months as the company worked to create alternate sourcing arrangements. 

Following the losses that hit the automotive industry, Ford also saw a reduction in limits, increasing its effective retention. “The market didn't react significantly to Japan at first, but with Thailand following closely, there was a significant restriction in coverage,” reports Daniel M. Ames, the company's associate director of corporate insurance.  

Ames anticipates market capacity gradually increasing in the months ahead. “I expect to see that happen in 2013 as insurers become more comfortable to their aggregate exposure, which will allow them to better manage capacity. I also expect going forward that the industry is going to differentiate better between their clients within industry classifications so that they will provide belter coverage, limits and pricing to those that demonstrate a better understanding of their supply chain.”

Ford intends to be one of those companies and has a plan for doing so. “You need to be transparent in working with your insurers—communicate with them regularly and consistently so they understand the risk and exposure to the company. You need to plug yourself into the operations so you become part of the information stream. And you need to move transparency further down the supply chain by working with your tier-one suppliers to understand lower tiers,” Ames advises.

Ames also has advice, based on Ford's experience, for other companies that suffer a CBI loss: ”You need to capture data early to determine your Business Interruption loss, but you also need to support the business in getting back up and running as quickly as possible,” he says. “Ultimately our job as company is to build cars, not to manage an event to support an insurance claim.”