Risk Insight: Supply Chain Disruptions

Manufacturing & Distribution, Property & Casualty, Risk

Supply chains are complicated right now. The pandemic’s effects are still lingering in the manufacturing space, and many organizations are still having trouble getting the amount of supplies they need in the timeframe that they need them in order to run their businesses at their ideal levels of efficiency.

At the same time, globalization hasn’t slowed. Companies are more dependent than ever on suppliers domestically and internationally to provide them with raw materials, parts or finished products. Any disruption or delay in receiving these goods could result in business interruption loss.

Companies can take steps to limit the impact of supply chain disruptions. Using multiple suppliers of the same goods when possible or warehousing more goods when feasible is a great first step for organizations looking to limit their risk. Insurance is another risk management tool to limit your exposure to loss and reimburse your company for lost profits or related costs caused by disruptions in the supply chain.

Insurance Options Available to Mitigate Risk

  1. Contingent business income coverage (also known as dependent business income). This type of insurance provides coverage for businesses you may depend on that are disrupted by a physical property damage loss (such as your suppliers’ factory is damaged by fire and can’t supply the product to you). This coverage does not protect for all perils, but can provide coverage for perils covered by a typical insurance policy.
  2. Appropriate ocean cargo and transit coverages in the event that your products are stored in a warehouse for a period of time. There can be a gap in coverage without unnamed warehouse/locations coverage included on the policy.
  3. 831b captives for supply chain interruption. This coverage is very customizable, and can allow you to fill in coverage gaps, provide increased limits, or deductible buy downs. The primary purpose of these captives is to protect against unique risks and fund for potential future losses.

Key Takeaways

Supply chain disruption is a top concern for organizations in the manufacturing & distribution space, and it’s unlikely that current issues will solve themselves in a hurry. Addressing your supply chain concerns with a two-pronged approach of risk management and insurance solutions can put your business in the best position to navigate challenges and operate at your ideal levels. Reach out to your M3 account executive to discuss your insurance and risk management options for supply chain resiliency.

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