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Point of view: The breaking point of the supply chain



When the garage door to our house stopped opening last month, I thought the battery on the remote opener needed to be replaced and that would be a quick fix. But even with a range of new batteries, the door did not change. Cleaning the eye of the sensors that are programmed to stop the doors in their tracks for sudden obstacles like skateboarding children did not work either. Nor to adjust the sensors.

After a visit by the guy at the local company who has been fixing garage doors for more than 80 years, we were told that the problem was a broken spring. Easy fix, right? Not so fast. The springs are on backorder.

A call to the company that manufactures the doors informed us that there have been problems with getting the springs and that deliveries are few and far between. The shortage of garage door parts is apparently widespread. Do you need a feather? Be prepared to wait weeks. Do you need a new garage door? The wait will be months.

Production delays and shortages due to the pandemic have meant that garage door parts have high demand and lack of supply, along with many other goods. Prices are also rising as manufacturers struggle to keep up with demand.

The pandemic has thrown business disruptions into the spotlight, and supply chain disruptions are the focus of many companies' risk managers. The fragility of the interconnection system that underlies the economy and the flow of goods around the world is being tested as never before. As we report on page 8, the risks in the supply chain are complex and include not only ships, but shipping containers, warehouses, trucks, railway facilities and labor, all of which are in short supply. Accumulations of risks at several chokepoints in the system are a growing problem.

Traditional business interruption insurance would generally cover disruptions at a factory due to physical damage ̵

1; and natural disasters such as Hurricane Ida and the winter storm Uri earlier this year have shown the need to be better prepared for such events. But obviously there are many other complex, interrelated causes that can leave a business with no parts or resources to function.

Several insurance policies may come into play but if they will answer is open to questions. Cargo delays, unless they involve the destruction of fragile goods due to delays, are unlikely to be covered. Insurance on conditional business interruptions can be another source of relief for policyholders of commercial property, if a covered loss – think a fire or hurricane – caused physical damage that resulted in business interruptions at the site of a supplier.

There are also some specialty supply chains. available policies that can be tailored to cover disruptions that are not the result of physical harm, such as government action, virus-related losses and civil unrest. Trade credit insurance is another important coverage that sees increased demand from the pandemic that protects companies against the risk of non-payment.

Regardless of the policies they have in place, companies should take a fresh look at their coverage and, crucially, the terms and conditions including restrictions, sub-limits and exceptions that may apply to their individual insurance policies. Innovative insurance coverage is part of the answer, but risk managers also have an important role to play in changing business thinking and strategies to build a more sustainable approach to resisting future supply chain disruptions.


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