Business Interruption Can Impact Your Supply Chain
Bloomberg says “a massive hurricane, a historic drought, and 16 other major disasters across the US collectively racked up $165 billion in damages and killed at least 474 people in 2022,”According to an analysis by the National Oceanic and Atmospheric Administration, it is approximately.
You worry about your business’s survival when such severe weather conditions occur. Even if your business isn’t directly impacted, the delivery of your products and parts could be affected.
But severe weather and natural disasters aren’t the only events that can impact your supply chain. Consider transportation failures like cargo theft, road closures and freight damage — or the shipping container vessel Ever Given, which ran aground and blocked all passage through the Suez Canal for a week in 2021.
According to shipping news, the canal is home to an average of 50 shipping ships per day with a combined cargo value in excess of $9 billion. Lloyds List. More than 200 ships were stopped on each side of the canal while they waited for clearance. Vessels not caught in the immediate traffic jam scrambled to find new travel routes (and that’s not cheap) or decided to wait it out, despite the delay. While the total loss from the Suez Canal blocking are unknown, they have been estimated at $60 Billion.
Uncertain and volatile markets may also cause increased raw material costs, which can have an adverse effect on your supply chain.
According to A.I., cyberattacks and computer hacking are the top two events that have had an impact on supply chain operations in recent years. report by Supply Chain Insights. Even geopolitical instability — riots, protests and wars — can have an effect.
The interdependency and importance of global supply chains and local business was more evident in 2020 than any previous year. This clearly means that it’s not a case of If The disruption to your business could be disruptive, however Where.
How can you keep your business running smooth despite the external and unavoidable circumstances that could impact your supply chain?
Assess how many exposures you have in your supply chain, plan for alternate suppliers and insure against the risks you can’t avoid.
Insurance policies that cover specialties
Insurance products that specialize in contingent business interruption (CBI), insurance, and supply chain can reimburse you for any lost profits or expenses. Below are explanations of both products.
Contingent business interruption insurance
This is a great option to protect your business against losses caused by interruptions at supplier locations, but it’s limited in its coverage. CBI insurance only provides coverage if your suppliers’ businesses are disrupted by physical property damage, such as a factory fire. CBI insurance also doesn’t protect against all disruptions, such as road closures. When purchasing CBI, you may be required to identify your suppliers and if you change suppliers, you’ll need to update your policy to secure ongoing coverage.
Supply Chain insurance
CBI insurance covers more of a specific area, while supply chain insurance provides broader coverage. This insurance covers not just disruptions due to physical damage to suppliers but also covers many other events such as road closings, riots and wars, political events and severe weather. Supply chain insurance also covers labor problems, such as strikes, regulatory actions, financial issues, and production process issues.
Insurance companies often offer multi-tier coverage that covers your entire supply chain. Multi-tier coverage may be available if your company has many suppliers. If you don’t have multi-tier coverage, disruptions caused only by the first-tier supplier are covered.
COVID-19 has been the subject of multiple lawsuits relating to insurance and exclusion scenarios. Supply chain insurance is broader and intended to cover interruptions to business caused by a disruption in the supply chain itself and doesn’t normally require a loss to your physical property (unlike commercial general liability or business interruption). Talk to an insurance agent about policy exclusions or aggregate limits before you assume coverage.
Examine your company’s insurance policies
While you are focusing on your day to-day business operations, knowing that the general liability or business owner insurance will protect your business from any unforeseeable circumstances would be comforting. The nature of modern business means that you company may be part of a larger network than the one located in your office.
Talk to your agent about CBI and supply chain insurance, which can help limit disruptions in supply chains and provide business continuity.
The post How Business Interruption Impacts Your Supply Chain This article was first published on Commercial Insurance for Delaware Business.