General Insurance Article - Global supply chain crisis exposes limits of BI insurance


The Coronavirus Disease (COVID-19) pandemic has posed unique challenges for supply chains globally, causing an imbalance in both supply and demand. The introduction of lockdowns and social distancing measures, together with labour shortages, limited the supply of key products during most of 2020 and well into 2021, while consumers and businesses increased their demand for a wide range of products during the pandemic.

 The supply chain woes were exacerbated by other disruptive events in 2021, including the massive winter storm in Texas, the blockage of the Suez Canal, and the cyberattack on the Colonial Pipeline Company. In this context, many companies turned to their insurance policies to try to recover some of the losses caused by the pandemic, particularly under their business interruption (BI) and contingent business interruption (CBI) insurance. Although BI insurance is aimed at covering losses arising from physical damage, the pandemic triggered a large number of BI claims in many countries, increasing litigation for insurance companies and creating a number of challenges for the industry as this product was not priced to cover pandemic losses.
 
 Key highlights include:
 -- Global supply chains are increasingly pressured by both lower supply and higher demand for certain products owing to the pandemic.
 
 -- Most income loss claims resulting from the pandemic are excluded from standard BI and CBI policies. However, there is significant pressure on insurers to retroactively assume some of these losses, which were not adequately priced or reserved to serve this purpose.
 
 -- In our view, the short-term challenges relating to BI and CBI claims remain manageable given the strong capitalization and earnings performance of insurance companies.
 
 -- Over the long term, demand for supply chain insurance could significantly rise given inadequate protection from standard BI and CBI policies amid the coronavirus pandemic.
 
 “In addition to BI and CBI policies, insurance companies have offered a broader coverage called supply chain insurance. This product is intended for a relatively small number of clients that need protection against disruption in their supply chains, not only caused by physical damage to the premises of key customers and suppliers but also by a wider range of events, including industrial accidents, labour issues, political upheaval and social unrest, the inability to enter premises, regulatory actions, and, in some cases, public health emergencies such as a pandemic,” said Marcos Alvarez, Senior Vice President and Head of Insurance.
  
 “In our opinion, global supply chain insurance policies, which are usually bought by large companies with relatively complex needs, could become more prevalent among a larger number of clients. The global supply chain challenges during the pandemic could open new business opportunities for insurance and reinsurance companies as corporations increase their demand for more comprehensive coverages and risk transfer tools.”
  

Back to Index


Similar News to this Story

Cyber underwriters should view GoDaddy attack as a warning
A Single Point of Failure (SPoF) cyber attack such as the one currently affecting web-hosting firm GoDaddy represents one of the most likely ways the
Appetite for credit insurance grows in Western Europe
Trade credit insurer Atradius has published 2021’s annual Payment Practices Barometer Survey Results for Western Europe. Denmark had the highest perc
Managing Agents aim to increase their commitment to Lloyds
Aon have announced the launch of a new report summarizing the findings of its 2021 survey of Lloyd’s managing agents’ Chief Financial Officers.

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.