Emerging supply chain risks could drive higher insurance claims

The industry needs to steer through rough waters once more

Emerging supply chain risks could drive higher insurance claims


By Gia Snape

Disruptions in the global supply chain will test businesses and their insurers as geopolitical tensions exacerbate shipping delays in major trade routes worldwide and potentially drive higher business interruption claims.

The crisis has underscored the need for resilience and agility in supply chain management among organizations, and the need for innovation and resourceful thinking in the insurance industry, according to Paul Burgess (pictured), global head of multi-national claims at Sompo International.

Speaking at the Insurance Innovators conference in London on Tuesday (February 27), Burgess warned that natural disasters, ongoing geopolitical tensions, and missile attacks on ships traveling through the Red Sea continue to put supply chain woes in the headlines.

“In recent years, we’ve had to steer through some strong storms and face tough challenges.

These disruptions have highlighted the vulnerabilities in our complex supply chain network,” Burgess said.

Apart from tensions in the Red Sea, Russia’s invasion of Ukraine has affected maritime activities in and around the Black Sea, adding to the strain by forcing freight to travel by the Cape of Good Hope and adding weeks or more to their shipping time.

“The delays are creating knock-on effects, such as cash flow difficulties and compounding shortages on production lines,” said Burgess. “All of this brings extra cost to insurers, insureds, and consumers.”

Supply chain troubles – what’s the situation post-pandemic?

The Red Sea attacks are the latest in a series of events that can be traced back to supply chain disruptions during the COVID-19 pandemic. The problems were worsened by the 2021 blockage of the Suez Canal.

Adding to logistical woes is the spike in prices of shipping containers from Asia to Europe, going up as much as 300% for some businesses, according to Burgess, as well as severe flooding in Slovenia last August, which caused production delays for European car manufacturers.

“The problems are expected to be exasperated next month as China begins shipping again in earnest after its annual pause for two weeks of Lunar New Year celebrations,” Burgess told insurance leaders at the London conference.

Longer transit times and lower cargo capacity will have a domino effect on the interconnected web of suppliers, manufacturers and retailers worldwide, who will eventually pass on the expense to consumers.

“When one link in this chain is disrupted, the entire system falters,” Burgess added. “We’ve seen this play out in real-time as shortages of essential goods, raw materials, and components have led to production delays, increased costs, and inflation.”

Steering through ‘choppy seas’ of inflation and supply chain instability

In light of the renewed strain on the supply chain, business organizations must be agile, rethink their strategies, diversify their sourcing, and embrace new technologies to build a more robust procurement strategy.

Collaboration and transparency are also vital. Burgess urged businesses to work together to anticipate and address potential disruptions.

“This crisis also presents an opportunity for innovation and growth,” he said. “As we navigate these challenges, we can reimagine how supply chains operate, leveraging sustainability, digitalization, and automation to create more efficient and sustainable systems.”

For insurers, the potential surge in insurance claims could worsen their financial challenges in a volatile and inflationary world.

It is “imperative for the insurance industry to adopt and innovate” amid this dynamic environment, Burgess concluded. This means re-evaluating risk assessment models, revising coverage terms and conditions, and developing new products to address emerging risks, he said.

Moreover, improved communication and transparency between insurers and policyholders are essential to building trust and enhancing collaboration.

“Global supply chain issues and insurance claims are closely intertwined, and addressing these challenges requires a multifaceted approach,” Burgess said.

“By embracing the practice of risk management, fostering collaboration across the supply chain, and evolving insurance solutions to meet the needs of modern businesses, we can work towards building more resilient and agile supply chains that are better equipped to weather the storm’s disruption.”

Do you have anything to say about global supply chain disruptions and their impact on claims? Please share your thoughts in the comments.


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