Risk managers should adapt approach to supply chain risks – Airmic

Risk management association Airmic yesterday (6 December 2022) issued a new report highlighting the ongoing challenges faced by businesses over ever more complex and strained supply chains.

The guide outlined a dozen issues that have to be addressed by businesses, their brokers and insurers and offers directors an opportunity to stand back and re-examine “some basic but important questions”.

“The aim of this paper is to provide a toolkit to assist directors in understanding and keeping pace with this fast-changing and increasingly complex landscape of supply chain challenges,” explained the report’s introduction.

“It takes the form of 12 questions designed to break the diverse set of issues down into a manageable series of topics.

”The list is not exhaustive and the answers to each question will vary tremendously depending on the size, maturity and nature of the organisation’s operations.

“Nevertheless, in response to each question, we identify a range of issues which are likely to be relevant. We also consider how well the insurance industry is responding to the supply chain challenges faced by organisations in providing relevant and meaningful solutions.”

Broker McGill and Partners also contributed to the creation of the guide.

Holistic solutions 

Airmic’s report explained that insurers were willing to take increasingly “holistic and cross-class” approaches to the challenges faced by larger organisations via the use of larger data sets and more sophisticated operational techniques – including parametric solutions.

Through these developments – which can incorporate property, business interruptiuon, liability, marine cargo and cyber risk – insurers are beginning to offer “relevant and meaningful” solutions to the rapidly changing needs of businesses.

Airmic chief executive Julia Graham added: “Supply chains are adapting and reshaping in response to the fast changing and volatile world we operate in.

”Boards are considering the risks associated with their supply chains and closely examining the cost benefits of current practice and changes, which might be required to meet the purpose and strategic objectives of the organisations they govern.”

The report said geopolitical conflicts, weather events, Brexit, labour shortages, the pandemic, port delays and power outages have all kept supply chain disruptions at the top of the news agenda.

Systemic risks? 

“These supposed ‘once-in-a-generation’ events have taken place with increasing frequency and the impact on supply chains has been significant,” explained the report. 

It added: “In a global economy, any one of a myriad of sudden and serious supply chain interruptions with an equally disparate number of different causes can have catastrophic consequences on an organisation’s ability to deliver to its customers.

“How do board members identify and maintain oversight of the mission-critical elements of the organisation’s supply chain whilst maintaining oversight of the immediate challenges faced by the organisation and ensuring it is developing a longer-term strategy to build resilience?”

Francis Kean, financial lines partner at McGill and Partners and co-author of the report, said: “The challenge faced by directors in discharging their non-delegable duty to supervise a company’s affairs is especially acute when it comes to mission-critical elements of the supply chain.

”That is due to a web of increasingly complex and unpredictable risks including geopolitical, cyber-related and reputational.”