Supply Chain Coverage

A company’s supply chain is important in practically every enterprise, whether it’s a large corporation or small business, because disruptions in supply chains can impact the vital flow of information, products, and services for retailers, manufacturers, suppliers, transporters, warehouses, and customers. Interruptions to an entity’s supply chain, whether caused by non-physical or physical events, increases a company’s supply chain loss exposures.


To reduce the risk of loss exposure resulting from supply chain disruptions, it is critical for organizations to consider supply chain insurance coverage. Supply chain  coverage goes beyond traditional business insurance to focus on the interdependency of segments necessary for continuous business operations. It can be especially beneficial when interruptions in business occur in events not related to physical or property damage, such as riots and strikes. This keeps all supply chain operations run smoothly, which in turn helps the suppliers, manufacturers, and transporters in business.


Most businesses, whether a manufacturer, retailer, or service provider, rely at least to some extent, on a supply of products, materials, inventory, or services, to ensure the continuity of its own business operations. Let’s take a look at the important components of supply chain coverage.


Risk Assessment – The first step to being protected from non-physical and physical damages is to obtain an appropriate risk assessment with respect to your company’s supply chain loss exposures. This includes first identifying what your risks are based on what you supply, be it a product or service.  This information aids risk measurement, often with the help of an insurance company. This is followed by purchasing the appropriate business insurance policies that will cover your measured risks. Any anticipated peril that stands to interrupt a company’s supply chain can be underwritten into a business insurance policy.


Non-Physical Damage – Some risks occur that don’t necessarily cause physical damage to the property or persons involved, but will nonetheless cause business interruption. These can cause both a major strain on a supply chain’s operations and business income. These damages include regulatory action, riots, political events, natural disasters causing non-physical damage, strike, civil or military actions.


Physical Damage – Supply chain coverage should also include the unexpected events that do lead to physical damage such as natural catastrophes, fire, flood, and vandalism of businesses, office buildings, retail stores, and warehouses. Both types of coverages should be for multiple supplies or suppliers. Coverage for physical damage includes repairs to the property, medical costs such as bodily injury, legal costs for any lawsuits that may follow, and business interruption coverage.


Business Interruption – One of the most important aspects of supply chain insurance coverage is being protected from business interruption. Non-physical damage events like strike or riot, and physical damage events such as a natural disaster or forest fire, can not only cause damage to the building, but also cause supply chain business interruption. When these types of events occur, the retailers and suppliers are not able to conduct business normally. This could result in a sufficient loss of business income and customer appreciation. Supply chain coverage should always include business interruption coverage.


Supply chain coverage offers more than basic general liability or property damage like most business insurance policies. With these coverages, you are going to have ample protection against events not related to property damage. As someone in charge of supply chain operations, business interruption coverage and other ways of insuring non-physical damage events have optimum protection.