Commercial insurance buyers generally want better insurance products to cover their supply chain risks, a simple survey by FERMA has confirmed. Only 14 percent of the risk managers who responded to the online poll on supply chain risks felt that existing coverage and capacity were adequate, and just half said they insured against contingent or non-damage business interruption.

Forty-six percent said coverage and capacity were not sufficient, while 28 percent found conditions too restrictive and 26 percent stated the cost was too high. (Multiple answers were allowed.)

The survey carried out by FERMA followed comments at the 2011 FERMA Risk Forum in Stockholm in October from then President Peter den Dekker that the insurance market was not meeting risk managers’ needs for protection against supply chain disruption.

Risk managers responding to the survey have said they would like FERMA to stimulate discussion about supply chain risks and the insurance market at European and national association level. The President of FERMA Jorge Luzzi commented: “This survey confirms how important supply chain risks have become for many FERMA members, and we will explore during the new year how we can best support them.”

A high proportion from of the 153 replies to the survey, which took place in early December, came from FERMA members in manufacturing. More than half – 52 percent – said they were very concerned about continuity of supply from direct suppliers, and 36 percent said they were somewhat concerned. Disruption to suppliers’ sources is also an issue but less acutely: 35 percent said they were very concerned and 48 percent somewhat concerned.

Twenty-one percent or 32 risk managers said their business had suffered a material breach in their supply chain over the past two years. The Japanese earthquake and tsunami in March 2011 were the principal causes, followed by the eruption of the Iceland volcano Eyjafjallajökull in 2010, which caused widespread air transport disruption. Only 13 responses of the 153 cited political upheaval as a source of business disruption.

FERMA board member Igor Mikhaylov commented: “In light of the current limitations of insurance, businesses need to apply risk management to the whole supply chain. Risks of partners and subcontractors should be considered to reduce their vulnerability to supply chain ruptures. Avoiding single points of failure is one of the most important targets of risk and business continuity management.”

Mikhaylov said that even the temporary loss of a single, small but critical component could affect a company’s products time to market, affecting market share and revenues if competitors had other sources of supply. He added that the floods in Thailand’s industrial parks, which continued into November, had highlighted other long term implications of dependence on limited sources of supply: the price of hard disk drives for computers and other electronic equipment had doubled.

Press contacts:

Lee Coppack
+44 (0)20 8318 0330
lee.coppack@insurance-research.com

or

Florence Bindelle, Executive Manager, FERMA
+32 2 761 94 31