We were pleased to host an automotive roundtable event in partnership with Commercial Risk. During this event we discussed the barriers to supply chain insurance and how to overcome it with the leading risk managers from the automotive industry. In this whitepaper we provide a round-up of the topics discussed in more detail.
Despite the rising frequency and severity of supply chain related events and serious losses incurred as a result by leading multinational companies and their myriad of suppliers, the forces of demand and supply are not yet in harmony when it comes to supply chain risk transfer.
This mis-match between the scale of the risk and level of transfer strongly supports the notion that considerable work needs to be carried out to significantly improve the depth and breadth of risk identification, measurement and analysis to lay the groundwork for hopefully higher levels of demand and a more economic price from the insurers.
There is also clearly a big education job required in the auto sector as well as other highly exposed areas as shown by this discussion and other work carried out by bodies such as the Business Continuity Institute. Board members need to appreciate that this risk can be insured before the conversation about price even begins.
There are dedicated supply chain insurance products available to protect companies against supply chain disruption outside standard property and BI cover, but, take-up was low because these solutions basically did not meet the requirements of potential customers.
The sentiment amongst risk managers is that a dedicated supply chain insurance was simply too expensive to justify, that collecting the relevant risk information was overly complex and there was a lack of clarity over when, and under what circumstances, policies would actually pay out.
Lack of Information
The main problem appears to be the lack of information and barriers to acquiring such information especially down the line beyond Tier 1. Sahil Kothadia, Managing Director EU, Resilinc made the basic point that risk assessment is not easy to do in the absence of adequate information on the risk.
Matthew Grimwade, Head of Automotive at JLT Specialty said “the main problem has been the unwillingness of suppliers to divulge information and this clearly makes underwriting more difficult. But he also added that the impact of the prolonged soft insurance market worldwide cannot be overlooked.”
Mr. Seidl, Insurance Manager at Dräxlmaier Group asked whether the insurance industry currently also has the technical ability to properly assess and price this risk. “I also have to ask whether the insurance industry has underwriters that are able to assess this risk? They can do property and natural catastrophe but can they assess the supply chain risk from a NDBI perspective?” he asked,
Mr. Braukmann, Managing Director at Conti Versicherungsdienst, the insurance management arm of Continental said “The way ahead for the insurance market is to focus on elements of the process. Then insurers can underwrite it and work with customers to deliver higher limits when they are wanted.”
Time to Step Back
Tens of thousands of structures around the world are reaching the end of their working lives. Demands on bridges, ports, utilities and other key infrastructure have been increasing, but a failure to maintain or replace these structures comes at a human and economic cost. Innovative approaches are required to address the ageing and failing infrastructure.
Focus on Prevention
Mr. Braukmann, at this stage, suggested that perhaps the insurance sector needs to ask itself whether the focus should actually be upon risk engineering style services such as those provided by specialist insurers such as FM Global rather than traditional risk transfer.
Solving the mis-match between the between the scale of the risk and level of transfer will only really be achieved by the acquisition and cost-effective analysis of richer, deeper and broader data that does not require risk and insurance managers to persuade their colleagues and suppliers to divulge vast quantities of what is perceived to be sensitive data and information.
This is exactly why JLT has developed a revolutionary approach which links supply chain analytics to an insurance solution. By having access to analytics from Resilinc., clients can receive end to end supply chain network mapping going beyond the traditional Tier 1 named suppliers. In addition, there is prediction analytics helping to identify the biggest failure points anywhere in the supply chain. Through this solution, clients will benefit in improved terms from the insurance market based on greater visibility and management of risk.
TALK TO AN EXPERT
For further information please contact Matt Grimwade, Head of Global Automotive on +44 (0)203 797 7734