Covid-19 has had a cascading impact on global production and logistics networks, causing shortages of raw materials, shipping delays, and disruptions in supply chains. As a result, businesses are now rebuilding their supply chains from scratch due to the inability of contingency plans to cope with the fluctuations in consumer demand.
According to the Global Supply Chain Risk Report 2023 by WTW, there is now a surge in demand for business interruption (BI) insurance coverage. The report surveyed supply chain risk decision makers from large companies across eight key sectors and found that many of them experienced larger-than-expected losses during the supply chain crisis.
These companies are now focusing on enhancing resilience by reducing the complexity of their supply chains.
While businesses are still recovering from the pandemic’s impact on supply chains, new disruptions and risks have emerged, adding to the uncertainty of operations. Economic risks and inflation are major concerns for 32% and 26% of respondents, respectively.
Cyber risks pose a significant threat, with 34% rating them as having a high impact on supply chains and 54% considering them to have a medium impact.
Sustainability is also a key goal in risk management for 83% of respondents, with climate change and the environment being cited by 54% as top global trends affecting supply chain risks. Geopolitical factors and the ongoing risk of pandemics were identified by 35% and 60% of respondents, respectively.
Luke Ware, Head of Corporate Risk & Broking, Asia, at WTW, stated that businesses are facing challenges in adapting to a disruptive environment, including switching sourcing models and rapidly onboarding alternate suppliers. In such complex supply chains, risk can arise at any point, and disruptions from a single supplier can have a major impact if alternatives are not readily available.
Upstream risks were considered a greater threat by 48% of respondents compared to downstream risks (19%), especially in sectors like semiconductors (54%) and renewables (53%).
To address these challenges, Luke emphasized the need for resilient supply chains and highlighted the growth opportunity for insurance coverage. Currently, insurance for financial supply chain losses only offers limited protection, as exposed by the pandemic. Luke stressed the importance of regular review and adequate insurance coverage to achieve true resilience in businesses.
The survey revealed that fewer than 20% of companies have specific policies covering supply chain business interruption, and many companies remain underinsured or uninsured. The importance of BI insurance has increased among senior decision makers, with 65% reporting higher-than-expected supply chain-related losses in the past two years.
While 58% considered the sales impact to be short-term, 83% have made or plan to make significant changes to their supply chains in the next two years. Achieving full supply chain transparency is challenging, with 73% citing supplier unwillingness to share commercial information as an obstacle.
Lately, there has been a growing recognition among businesses of the need for BI insurance to mitigate supply chain risks. Companies are undergoing transformations and making substantial changes to enhance their supply chain resilience. However, there is still a significant coverage gap that needs to be addressed to ensure true resilience in the face of future disruptions.
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