In the bid to mitigate the intangible manufacturing supply chain risks, Konrad Meisterhans and Thomas Keist explain how innovative approaches such as  parametric solutions can complement traditional products

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Natural catastrophes, fires and industrial accidents, and machinery breakdown continue to be a major source of disruption to manufacturing supply chains around the world. This has been confirmed by a series of large manmade and catastrophe events that have severely damaged the industry, not only on the material damage side but also in terms of business interruption (BI). These ‘physical’ exposures are well understood and addressed by traditional property damage and BI insurance.

The risks you can’t see

Meanwhile, there are other less tangible risks threatening supply chains, including cyber, geopolitical tensions and non-damage BI. In a more vulnerable world, with pressure to produce at the lowest possible price, growing reliance on technology, and ever more complex inter-linkages within supply chains, there are new and emerging vulnerabilities. These are not as easily addressed by traditional insurance products.

Attempting to underwrite for risk with non-damage triggers can push the boundaries of insurability

Traditional insurance products have features to cover aspects of supply chain, such as CBI extensions, but these are always linked to a material damage trigger. What if there is no physical damage? For instance a major supplier becomes insolvent, or has its systems taken offline by a cyber attack? What if there is disruption of the supply chain due to a catastrophe on the other side of the world, which impacts a major port, disrupting the flow of ‘just in time’ goods?

Solutions for uncertainty

Swiss Re Corporate Solutions is working with its customers in the manufacturing sector to protect their business from losses wherever they might arise. However, attempting to underwrite for risk with non-damage triggers can push the boundaries of insurability. While traditional triggers are well understood and there is a long history and claims data that can be used to quantify and price the risk, there is far more uncertainty attached to non-damage business interruption. 

This is where more innovative solutions are being used to bridge the gap. One solution involves working with clients to form a captive, which Swiss Re Corporate Solutions sits behind, providing reinsurance and risk expertise. The captive offers liability covers to both the parent and key suppliers and works effectively from a risk mitigation perspective, giving a much greater level of insight and control over the supply chain.

Using data triggers

Another interesting solution taps into the ever-increasing availability of data captured from sensors and cameras within supply chains. As manufacturers move towards digital supply chains, parametric insurance products can be structured around this data, which trigger a pay-out based on pre-agreed parameters.

Innovative and parametric solutions are being used to bridge the gap

For instance, if the river gauges used by a FLOW product pick up that water levels have dropped below a defined threshold level, it pays out a certain amount per day to customers to compensate for increased transportation costs and/or business interruption.

Thinking holistically

These customised solutions are used to address specific supply chain exposures that go beyond physical damage. Success involves maintaining a close dialogue with customers and working together to build a solution that fits their particular requirements. At Swiss Re Corporate Solutions we always take a holistic view of the client and think outside of the box as risk consultants. It is a value that differentiates us from our competitors in many ways.

Konrad Meisterhans is director, EMEA property, at Swiss Re Corporate Solutions and Thomas Keist is director, Innovative Risk Solutions EMEA at Swiss Re Corporate Solutions