The reason for this is quite simple. There does appear to be an immense gulf between what the average corporation expects from its insurers and what those insurers, and the reinsurers behind them, are willing and able to offer currently.

Most European corporations have expanded rapidly in recent times across the globe in search of cheaper production facilities, outsourced to new suppliers and sought new markets in emerging territories.

The events in Japan and Thailand last year proved without any doubt that this rapid expansion has brought with it a whole host of risks that were perhaps not properly accounted for, analysed and ultimately mitigated.

At the same time the insurance industry is taking a very close look at these risks because it has picked up a whole bunch of exposures that it had not accounted for. In some respects it was back to 2001 all over again as the insurers were found scratching their heads and asking ‘how didn’t we spot that potential accumulation?’

Clearly insurance buyers need broader coverage than is currently available to meet their fast-evolving needs. And clearly the insurers need far more information and proof that their customers are actually aware of and on top of these risks. Munich Re set the agenda by stating last September that the market has 18 months to sort it out or it will pull the reinsurance.

Normally one would expect the market to gradually find a compromise and, as John Dempsey suggested last month as he spoke from RIMS, find some substantive solutions by year-end.

But the impact and reaction of the US and international motor industry to the fire at the Evonik factory in Germany that could potentially lead to a halt in motor production, through a dramatic shortage of resin used for brake linings, suggests that it is perhaps not that easy.

The very fact that the motor industry was able to respond so rapidly to the potential supply chain crunch via its own dedicated supply chain action group the AIAG was positive news. But one has to ask the question: Does the motor industry need a specialist group like this to deal with such crises because it knows that it is constantly sailing too close to the wind? If it were on top of the risk then it would not need this group.

Also one has to ask the even more glaringly obvious question: Why on earth have the world’s biggest motor manufacturers allowed themselves to become reliant upon one producer, indeed seemingly one factory, for roughly 50% of the world’s capacity of one essential component that cannot be readily and rapidly replaced?

That does not look like supply chain management but rather supply chain gambling.

And don’t forget supply chain risk is not a new thing. I recall writing about the impact of the Kobe earthquake on the semi-conductor industry a long time ago now. At that point many people asked how the global electronics market had allowed itself to become so reliant on one group of companies all based in the same place. The same question was rightfully asked of the motor industry of Thailand last year and now of one factory in Germany.

Thus while it will be interesting to hear from the insurance industry in Malta what it is really doing to seek solutions to supply chain risks, I for one will be equally interested to hear what risk managers are doing to make sure that their risks are actually insurable and properly communicated and whether or not main boards are actually listening and acting to reduce the risks at source to help make it more manageable, if not insurable.

Come along to Malta and take part in the discussion!

Supply chain management and risk transfer is also a key question in both this year’s Risk Frontiers survey of risk managers, sponsored by XL Group and Willis, and the Risk Distribution Report, sponsored by Lloyd’s, our survey of Europe’s leading brokers. We are happy to hear the views of risk managers, brokers and insurers interested in this topic. If you have something to say please email Adrian Ladbury on aladbury@commercialriskeurope.com or call on 00 44 7818 451 882

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