Supply chain risk increasing in the CommTech sectors

19 October 2015

Supply chain risk is increasing in the Communications, Technology and Media (CTM) sectors, making Contingent Business Interruption (CBI) insurance more important than ever – although arranging the right cover presents a range of challenges. At the AMS 15 CTM industry conference, which we held earlier this year, a range of thought leaders shared their perspectives on this topic. In this follow-up bulletin, we explore some of the issues that they raised in more depth.

The flooding that hit Thailand’s industrial parks and Japan’s Tohoku earthquake, both in 2011, were rude awakenings for many CTM companies, whose businesses relied on affected suppliers. The scale of the natural catastrophes exposed the fragility of extended supply chains and the potential for costly interruption, putting the focus back on the valuable role that CBI insurance can play in safeguarding companies.

Reto Collenberg, regional head of DACH/Benelux/CEE for Swiss Re Corporate Solutions, told AMS 15 delegates that the 2011 Japanese quake and Thailand flood in the same year hit the high-tech industry with supply chain losses in the region of USD 7 to10 billion. He says: “The Thai floods and the Tohoku quake were a wake-up call for a lot of companies, so the topic of CBI became even more popular than it was already.”

Matthew Grimwade, Head of Broking in the Risk Practice at JLT Specialty, agrees, adding: “More recently, we have seen the Tianjin port explosions in China, which will have an effect on hundreds or even thousands of customers and suppliers. It is too early to say what impact that will have of terms and conditions in the market, but it was certainly a big enough incident to refocus attention on the potential scale and financial impact of a major incident.” However, Grimwade adds that while major incidents like the Thai floods and the Tohoku earthquake highlight the value of the CBI products that are out there, they also bring some frustration in terms of how difficult it can be to gather the right information and arrange appropriate cover, with the right limits and coverage extensions.

An exposed sector

The CTM sector – and particularly the semiconductor and technology manufacturing subsectors – are especially vulnerable to supply chain risks because of the large number of companies that can be involved in any one product. As Maarten van der Zwaag, Head of Property Risk Consulting at Allianz Global Corporate & Specialty (AGCS), explains: “These companies tend to produce just one part of an entire product, with most components being produced by other companies, making them highly reliant on suppliers. Also, the components are often very sophisticated and specific to a certain product, so if a supplier cannot provide something after a loss, it is very hard to get it elsewhere.”

When an incident does occur in this sector, even a relatively small event can have a massive knock-on effect – as was the case with the SK Hynix fire. CTM supply chain issues also have the ability to affect a large number of other industries, because so many of today’s products contain items such as computer chips. A big loss for a chip manufacturer could have a major impact on companies selling cars or fridges, for example.

For further information, please contact Kate Payne, Head of Comm Tech on +44 (0)20 7528 4445 or email kate_payne@jltgroup.com

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