Independent insurance agents would do well to have a serious conversation with business clients about the seriousness of supply chain threats.
A new global survey from
Zurich Insurance Ltd. released this week reveals that a disturbing number of small- and medium-sized businesses underestimate the risk of disruption to their supply chains. About 55% of businesses with 250 employees or fewer reported they would not be affected at all if they were to lose their main supplier.
And, in a separate study from Zurich, nearly one in ten businesses told the insurer they could not identify their key suppliers and 70% lacked visibility over their entire supply chain.
“There’s a lot of education that needs to happen,” says Linda Conrad, director of strategic business risk with Zurich. “The smallest firms are the least prepared to think about backup plans.”
Without this sense of urgency, some firms may elect to underinsure or even forego proper coverage for these risks. Yet that would be a mistake.
In truth, supply chain disruptions are common and costly. About 74% of companies worldwide have suffered a supplier-related disruption in the past year, according to Zurich figures, and for 14%, losses tipped the scales at more than $1.1 million.
The top three most common disruptions to supply chains are unplanned IT outages, cyber attacks and weather-related delays. Transportation complications can also be tricky, resulting in significant losses for businesses. The West Coast port slowdown in 2014, for example, cost some shippers three times as much to transport goods.
“In the case of the ports slowdown, people were having to fly stuff in or shift to different porst, which could cost a lot more,” Conrad told the
Wall Street Journal. Small companies in particular “don’t have the cash flow cushion to prepare for these things.”
Without insurance or a proper backup plan in place, businesses end up spending a great deal of money to find alternative shipment methods. Reputational damage is also a very real concern, Conrad says.
In the face of this reality, agents are urged to recommend clients develop a “continuity plan” with suppliers to specify another vendor who can take over if a disruption occurs, in addition to securing the proper coverage.
Currently, fewer than 10% of companies globally have these backup plans in place.
