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Risky Supply Chain Practices Lead to Higher Insurance Premiums and Difficult to Obtain Coverage

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In a business climate that’s is trying to operate globally amidst security issues, political and social unrest, natural disasters, and other factors that lead to supply chain break downs, certain types of specialty business insurance is becoming harder to get, and even harder to pay for. This includes coverage such as business continuity insurance, according to Richard Gane, a Vindigital supply chain specialist. Business continuity insurance is coverage bought to protect the company against loses incurred when profits are lost due to unforseen circumstances. 

The circumstances which have insurance companies worried about issuing such specialty policies are varied in nature. They include instances such as the General Motors India recall, where the multi utility vehicle Tavera was equipped with a component from a supplier which posed a safety risk. Other examples are the 2011 earthquake and subsequent tsunami in Japan, which caused considerable disruptions in global supply chains. Recent riots in Egypt are another such concern. Sometimes the problems aren’t so dramatic; they’re as mundane is a supplier within the chain going out of business.

There are ways to help your business be more attractive to insurance companies and lower the rates insurance companies are willing to charge you for these insurance policies, according to Gane. First, companies need to make their supply chain more visible. This includes shortening the supply chain and consolidating suppliers where possible and practical. Sometimes, this means moving a facility temporarily or permanently out of a region experiencing widespread unrest. It can also include resourcing contracts to suppliers which can offer better communications, more security, higher capacities, and greater visibility.

Insurance companies are more willing to insure those companies which can demonstrate a resilient supply chain. This means companies who have a good understanding of the risks inherent in their supply chain, and have viable contingency plans in place to address disruptions within the supply chain. Taking these steps protects the insurance company from having to pay claims under business continuity policies.

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