How can insurance help mitigate supply chain risks?
Supply chain disruptions may not be sufficiently covered under traditional insurance policies such as property or general liability insurance. However, there are various types of insurance that may respond to supply chain issues, such as contingent business interruption (CBI) and specialized supply chain insurance (SSCI).
CBI covers supply chain disruption caused by significant partners, suppliers, or customers. To qualify for a claim, the insurance policy may require a list of the insured’s dependent businesses. In this case, a disruption at an unlisted partner may not be covered. Furthermore, CBI will only protect the insured if the third-party entity it depends on has suffered physical damage caused by a covered peril, such as a fire or flood. It will not cover losses caused by disruptions to transportation infrastructure, political disruptions, or bankruptcy of your partner/supplier.
Generally, SSCI covers the gaps left by CBI insurance and responds to various potential risks and exposures such as natural disasters, production issues and industrial accidents, strikes, labour shortages, and other employment and labour issues.
A key differentiator between traditional property coverage and CBI and SSCI coverage is that the latter two respond to supply chain issues even in the absence of physical damage to the insured that is typically the cornerstone of a property policy coverage to qualify for any business interruption losses.
To make sure your business is adequately protected, it’s important to discuss coverage considerations with your insurance advisors on a regular basis.
No matter what type of coverage your business has, there are certain issues that require special consideration. Below, we discuss some of the key considerations that companies need to pay particular attention to when deciding how to mitigate their losses, including the impact to business interruption loss claims and the appropriate indemnity period.
Obligation to mitigate loss
Regardless of the type of policy, when an insured event takes place, the policyholder has a duty to mitigate its losses. Insurance is not meant to be a windfall.