Pandemic, e-commerce impact supply chain

Insurance exec on the challenges of supply-chain disruption in an evolving marketplace

Pandemic, e-commerce impact supply chain

Insurance News

By Ryan Smith

With e-commerce accounting for trillions of dollars in consumer spending, more goods than ever are traveling via land, sea and air. However, the effects of the COVID-19 pandemic have disrupted supply chains and brought new challenges for cargo and marine insurers.

Jack Falvey, chief operating officer of Falvey Insurance Group, recently chatted with IB Talk about how e-commerce and the pandemic have impacted the insurance industry.

Falvey said that the past few years have seen a “massive decentralization” on the procurement side, driving changes in how goods are delivered to customers. That, in turn, has impacted the insurance space.

“Cargo and marine insurance globally had, back in 2015, started losing money as a marketplace for a few years, and rates were going down a lot,” Falvey said. “The hurricanes of Harvey, Irma and Maria really put a spotlight on the marketplace, as lots of large losses were coming into the space. So it drove a major review of rating adequacy, and so rates across the industry grew dramatically over the last few years.

“As we hit … the e-commerce segment, though, a unique thing is happening where a lot of the risk that would have been placed into the traditional insurance market left it, because a lot of these smaller shippers aren’t necessarily buying the big, robust cargo policies, and they’re relying more on the limited liability of some carriers,” he said. “So you’ve seen a lot of the risk shift onto the logistics suppliers, away from the traditional cargo marketplace. So with the rates growing, the cargo market has remained relatively stable. In terms of a premium standpoint, it grows consistently with growth of GDP, but a lot of risk has been lowered onto the logistics chain, which is starting to be pushed backwards into the cargo market.”

Falvey said the pandemic caused demand for e-commerce to skyrocket as millions of people avoided leaving their homes.

“Simple things – down to even getting your groceries – transitioned to an e-commerce model,” he said. “And so nowadays I think people are pretty much relying on [shopping] online. … People that weren’t used to that e-commerce marketplace are now fully accustomed to it. Now, what that’s done, though, is it’s put a lot more of a demand onto the supply chain. Whereas goods were sourced out locally for storage, they’ve [now] been very centrally stored to meet the demand of the supply chain. As that demand grew, most of the arteries or the waterways to move those goods back out are still finite, and [the supply chain] has struggled to meet the demand that grew so quickly from March of 2020 to April of 2020. Just that one month, a complete demand shift occurred.”

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