Underinsurance and your supply chain

Continuing our underinsurance theme, this week we look at the supply chain. While many organisations combat the risk of purchasing robust cover to protect against disasters that could take place within their own establishment (e.g. fire or flood), underinsurance is a risk that runs beyond your company’s walls – your supply chain needs cover too.

It’s common for organisations, such as manufacturing or transport businesses, to have a long list of suppliers. And while you might think a supply chain concern is automatically covered in your business interruption policy, think again.

Without robust insurance, all it takes is a single supplier’s setback to collapse the remainder of your chain and cause serious financial downfall. Especially in the age of Brexit, this possibility is as acute as ever.

Consider the following guidance to ensure your organisation possesses the appropriate cover to protect against a supply chain disaster:

  • Name every supplier – many organisations make the mistake of only naming tier-one suppliers in their business interruption policy, providing no insurance protection in the event of a catastrophe that occurs further down the chain. Be sure to name your entire supply chain within your policy to avoid underinsurance issues.
  • Include non-physical damages – although business interruption insurance typically offers cover for physical damages, such as property destroyed by a natural disaster, it’s crucial to ensure your policy provides protection for non-physical damages throughout your supply chain as well. For example, while a supplier suffering from a major cyber-attack might not cause physical damages, it could still significantly disrupt business operations.
  • Don’t forget about delivery disasters – another example of non-physical damage that could still wreak havoc within your organisation is supplier delivery problems. Make sure your policy extends to common supply chain disruptions such as loss of goods in transit, or storage and delivery delays.
  • Update your policy – as your organisation’s supply chain evolves, so does your risk. With this in mind, failure to update your policy as these supply chain changes occur could result in inadequate cover in the event of a claim. For example, if your business is stockpiling to prepare for Brexit, it’s vital that you inform your broker to increase your sums insured.

For more help securing the right level of cover, contact Pound Gates today.