Insurance Solutions for Managing Supply Chain Risks
Maintaining a smooth supply chain is vital for manufacturing business owners. However, with today’s uncertainties, risks are inevitable. Perhaps this is a situation you have experienced firsthand. If so, you know the importance of mitigating supply chain risks through insurance options.
Consider the following insurance policies that can help mitigate supply risks and ensure your business keeps moving along, even when inevitable delays occur:
Business Interruption Insurance
In essence, it keeps your business moving even when there is an interruption that otherwise would have stopped production and/or service. Keep in mind that all interruption policies are slightly different, and you can determine your coverage limits based on your perceived needs. To determine if this type of coverage is something you should have, answer the following questions:
- If you suffered a loss that interrupted your business and made it impossible to do business, could you find another place to rent or set up shop temporarily?
- Does your current shop or business have sprinklers and fire alarms to protect against risk to your business?
- How long would it take your business to recover from damage to your building or physical loss to your products?
Answering these questions will help you evaluate how you would deal with business interruption and what you are doing to protect your business already. Most businesses cannot withstand even a short interruption, and such an event can lead to the end of their business. In fact, an astounding 40% of businesses will not reopen their doors after experiencing a disaster that causes a significant interruption in their business, according to FEMA.
Another important type of coverage to consider in managing supply risks applicable to your business is cargo insurance, which will protect your goods during transit. This coverage includes protection against accidents, theft, or damage. It protects your investments while they are en route. While you would hope that your cargo will be safe when making its way from wherever it's coming to your place of business or from your location to your customer, that is sadly too often not the case.
Cargo can go overboard, which makes up about 11% of lost cargo. Another 14% of shipped cargo is damaged due to improper temperature, and then the most likely cause of damage, in 25% of the cases, is physical damage. Physical damage can include bumps, drops, breakages, or cargo being knocked down. Really, it’s anything that can cause physical damage to occur to the cargo being shipped. Insurance companies deal with cargo losses regularly, making this a type of coverage you should highly consider if you ship regularly, be that on a ship, truck, or via the railway.
Contingent Business Interruption Insurance
If a key supplier faces issues, this contingent business interruption insurance is a type of policy that covers losses incurred due to supply chain disruptions. This issue is often caused by third-party suppliers. It differs from the already mentioned general business interruption insurance as contingent business interruption insurance provides protection when your supply is affected due to another business's interruption. For example, this could include protection against lost business because your supplier’s warehouse catches fire or is robbed. This type of coverage is often overlooked as it covers the loss of a third party, not your business itself. However, if you rely on another business or manufacturer to do your business in any way, this type of coverage can prove to be invaluable.
Product Recall Insurance
Finally, when contemplating insurance solutions to manage supply chain risks, you also want to consider product recall insurance. This policy will protect manufacturers against costly recalls due to product defects. It can cover a variety of expenses related to the recall process. Businesses have been forced to file for bankruptcy after facing the backlash of a hefty product recall. Many times, these businesses were not necessarily at fault either but were attempting to make it right with their customers, leading to a great deal of lost revenue. Thankfully, this protection, in essence, protects you from anything associated with the expense of a product recall. This includes the cost of removing products, destroying or disposing of them, and then replacing them.
Insurance Solutions Provide Protection Against Supply Chain Risks
With the right insurance solutions, you can safeguard your manufacturing supply chain against unexpected events, ensuring stability and success for your business. It is so frustrating as a business not to be able to provide the desired level of service to customers due to supply chain issues. While this isn’t something you can necessarily prevent, at least in its entirety, you can protect your business against the backlash supply chain issues can cause your business. Thankfully, at Arnold Insurance, we understand the many challenges that surround running a successful business in today’s marketplace, including problems with the supply chain. We would love to help you get the coverage you need to protect your business and everything you have worked for to manage supply chain risks. Contact us today to learn more.