After witnessing the damage natural disasters and economic turmoil recently caused supply chains around the world, more businesses are demanding that insurance organizations develop new strategies to assist with risk management practices.
A risk management consulting firm recently polled 67 risk and financial managers and found that 61 percent of respondents said they experienced a disruption within their supply chain in the past five years that led to financial losses. Only 30 percent received insurance claims that covered these incidents.
As a result, more than half of survey respondents agreed that the insurance industry needs to update its policies to incorporate the evolving threat landscape that supply chain managers encounter every day, according to a Business Insurance report.
The problem that insurance organizations face is the large amount of inconsistencies throughout the industry. In fact, the survey found multiple accounts in which supply chain managers believed they were covered under their policy, while the insurance companies disagreed, Business Insurance noted.
"The dichotomy that I think is borne out is that the insurance industry has not itself developed standards for reporting business interruption and supply chain risks and exposures," risk expert John Dempsey said, according to Business Insurance. "Therefore, the risk managers are not in the position to provide additional information because they don't know what to provide."
In order for insurance agencies to provide more substantial risk management policies, underwriters need more experience and supply chain managers need to communicate better with their auditors. For example, 61 percent of survey respondents said that more accurate exposure and risk data would allow insurance organizations to provide better property coverage programs, the news source reported.
Supply chain managers need to determine their vulnerabilities and identify what scenarios would expose these weaknesses, according to a Husdal report. Decision-makers should then find ways to reduce the total damage inflicted, demonstrating to insurance organizations that the business is taking proactive measures to reduce risk.
One of the most important tasks within a supply chain, risk management experts James Kiser and George Cantrell noted, is the distribution of roles and responsibilities throughout the suppliers, according to Husdal.
"For risk management to be effective, it must be fully integrated into the company’s business processes," Kiser and Cantrell said, according to Husdal.
By properly identifying, analyzing and combating risks, organizations will be better prepared for an evolving threat landscape and, as a result, acquire more effective insurance policies.