Swiss Re, a leading provider of reinsurance and insurance-linked financial solutions, reports that supply chain disruptions have cost organizations an average of $184 million annually. These disruptions are a significant concern for businesses worldwide. The recent years have shown the vulnerability of supply chains due to various factors such as the COVID-19 pandemic, natural disasters, and political tensions. A notable example is the 2023 Panama Canal drought, which resulted in a 49% decrease in shipping traffic, affecting about 5% of global trade. Such events highlight the increasing pressure that climate-related events exert on international commerce.
Despite some movement towards re-shoring and friend-shoring, the complexity of supply chains persists, with companies often lacking visibility beyond their first-tier suppliers. According to Swiss Re, this limited transparency and the absence of reliable data complicate efforts to accurately assess business interruption (BI) and contingent business interruption (CBI) risks. The failure to effectively quantify these risks underscores the importance of comprehensive data collection in strengthening BI/CBI management practices.
New Methodology Enhances Assessment
Swiss Re’s recent report outlines a novel methodology to analyze and quantify business interruption risks across supply chains. Developed in partnership with the University of California Berkeley Consortium for Data Analytics in Risk (CDAR), this methodology maps the impact of disruptions from production plants (nodes) to the final product. Through this mapping, Swiss Re aims to assist insurers in working with businesses to anticipate and mitigate risks more effectively.
By leveraging this new methodology, insurers can predict potential disruptions, optimize risk management strategies, and provide appropriate risk coverage for unavoidable risks. The report emphasizes the necessity for insurers to adopt a structured, three-step approach to enhance BI/CBI coverage. Initially, insurers should collaborate with clients to map supply chains across multiple tiers, integrating diverse datasets to address data gaps. This collaborative effort ensures a more comprehensive understanding of supply chain dynamics.
Structured Approach for Improved Resilience
Swiss Re, a leading provider of reinsurance and insurance-linked financial solutions, reveals that supply chain disruptions have incurred an average annual cost of $184 million for organizations. These disruptions pose a major concern for businesses globally. Recent years have underscored the fragility of supply chains due to various factors like the COVID-19 pandemic, natural disasters, and political tensions. A striking instance is the 2023 Panama Canal drought, leading to a 49% drop in shipping traffic and impacting around 5% of global trade. Such incidents illustrate the mounting pressure that climate-related events place on international commerce.
Although there have been steps towards re-shoring and friend-shoring, supply chain complexity remains a challenge, with companies often unable to see beyond their first-tier suppliers. Swiss Re points out that this lack of transparency and reliable data makes it difficult to accurately assess business interruption (BI) and contingent business interruption (CBI) risks. The inability to effectively measure these risks highlights the critical need for thorough data collection to improve BI/CBI management practices.
