After the devastating natural disasters that struck Japan and Thailand in 2011, insurance companies had to pay out the nose for damages, especially because of something called “contingent business interruption coverage.” As a result, insurance companies suddenly changed their tune about what and how much they are willing to insure. Edward Teach writes for CFO Magazine about the new way supply chains must manage their insurance.
Life and Death Insurance
Contingent business interruption insurance covers losses from actual physical damage to premises of a supplier or customer, which meant for some gigantic payouts for what occurred in Asia back in 2011. Now, it is common for limits between half a million and $25 million per carrier to be put into place by insurance providers. If a company wants a higher limit, the providers are going to demand to know why, as well as which suppliers are causing the need for that increased limit. It seems that if you want the least hassle, it is in your best interest to just diversify your suppliers. Understand what risks your suppliers bring to the table, and build in redundancy where it makes sense.
But another thing that disasters have caused us to realize is just how many loopholes there are in the insurance policies we have. Tricky wording can leave you on the hook for losses you thought you had covered, and it is important to distinguish the difference between “direct” and “indirect” contingent business interruptions. And even when you are covered, it can be tricky calculating how much you can really claim. Insurance is just a headache, regardless of the industry.
For more twists and turns, as well as more information about options available to you, you can read Teach’s full article here: http://ww2.cfo.com/supply-chain/2014/05/chain-breaks/view-all/