Thursday, 22 December 2011
FERMA survey confirms risk manager concerns over supply chain insurance
European commercial insurance buyers want better insurance products to cover their supply chain risks, a simple survey carried out by FERMA and published yesterday has confirmed.
Jorge Luzzi
According to the FERMA poll only 14% of the risk managers who responded to the online poll on supply chain risks felt that existing coverage and capacity is adequate, and just half said they are insured against contingent or non-damage business interruption.
46% said coverage and capacity were not sufficient. Some 28% of those polled found conditions too restrictive and 26% said the cost is too high.
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.
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Risk managers who responded 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.
Current 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 of the 153 risk managers who took part in the survey, which took place in early December, work for manufacturing companies.
More than half—52%—said they were very concerned about continuity of supply from direct suppliers, and 36% said they were somewhat concerned.
Disruption to suppliers’ sources is also an issue but less so. Some 35% said they were very concerned and 48% said they were somewhat concerned.
21% 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.
Only 13 responses of the 153 cited political upheaval as a source of business disruption. Ferma board member Igor Mikhaylov said: “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.”
Mr Mikhaylov said that even the temporary loss of a single, small but critical component could affect a company's delivery of products to market and affect market share and revenues if competitors have 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 since the Thai floods, he pointed out.
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