Global supply chains help manufacturers increase competitiveness and reduce the cost of doing business. But they also increase risk. This Slideshare explores the challenges facing insurers as well as solutions for this rapidly growing industry. Read more: http://www.genre.com/knowledge/blog/supply-chain-exposure-dont-let-insurance-become-the-weakest-link-en.html

2. Most manufacturers use third-party suppliers (contract
manufacturers or subcontractors), often providing critical
parts or services, to reduce the cost of doing business.

3. These global supply chains can help manufacturers
increase competitiveness and efficiency, but they also
increase risk.

4. The global electronics contract
manufacturing industry reached
$360B in 2011, and is expected
to reach $426B by 2015.”
– Center for American Progress

5. Thai floods batter global
electronics, auto supply chains

6. The result?
Losses in the
hundreds of millions
of dollars for well-
known electronics,
computer and auto
manufacturers.
In 2011 the floods in
Thailand and tsunami
in Japan highlighted
the prevalence of
outsourcing and the
extent of interruption
that can occur even in
industries expected to
have superior
business continuity
plans and redundancy.

7. Most businesses have supply
chain exposure.
Supply chains are not just
vulnerable to natural catastrophes.
It is often not sufficiently
planned for.

8. Image: 3M LED Lighting
THE OLD REALITY THE NEW REALITY

9. Image: 3M LED Lighting
Filament
Glass
bulb
Threaded
connector
Leads
Globe Driver
Light
guide
Threaded
connector
LED
panel
LED
THE OLD REALITY THE NEW REALITY
Products are “assembled”
using components
that are often outsourced.
Products were “manufactured”
at a single location.

10. WHO
EXPOSUREWHERE
WHAT
IS THE

11. The “supplier” may be
providing a key
ingredient or making a
necessary component
for your insured.
SupplierInsured

12. Supplier
Physical loss
occurs here
Insured
Supply chain
interruption is
the risk.

13. Financial loss
to Insured
Supplier
Physical loss
occurs here
Insured
Contingent Time
Element (CTE)
is the insurance product
that deals with this risk.
There are many types
of CTE coverage, and
the terms and extent
of coverage can vary
greatly. Know your form.

14. Because CTE is typically
triggered by a physical
loss at a non-owned
location, insurers are
often at an informational
disadvantage regarding
both the physical and
monetary aspects of
the exposure.
Supplier
Physical loss
occurs here
Insurer

15. HON HAI FOXCONN
LOSS EXAMPLE:
One of the world’s
biggest contract
assembler and
manufacturer of
electronic
components…
Image: Foxconn Pardubice by Nadkachna / CC BY-SA 3.0.

16. HON HAI FOXCONN
Image: Bloomberg Business
Image: Canale di Micgadget
Supplier’s location
was reported
as electronics
assembly.
It suffered a metal
dust explosion and
fire following.
This was an
unexpected
special hazard.
LOSS EXAMPLE:

17. DO YOU KNOW
THE PHYSICAL EXPOSURES?
• Is the supplier located in
a developing country?
• What do you know about special
hazards, local fire departments
and water supply?
• Are you pricing for the unknowns?
LESS INFORMATION
= LESS CERTAINTY

18. WHAT IS
THE MONETARY EXPOSURE?
• Every business should know which
of its products depends on a supplier
and how much revenue is derived from
each particular supplier.
• But 90% of businesses surveyed
said they did not formally quantify
supply chain risk when outsourcing
production!

19. Issue
Insureds with a coverage need
and an insurance market
reluctant to put up large limits
with limited underwriting
information

20. Solutions
– Better information
about key suppliers
and the annual revenue
associated with them
– More robust supply chain
management by the insured
– Greater willingness for
companies to allow insurers to
inspect and ask questions at
non-owned locations
– Realistic pricing expectations
that address the unknowns
inherent to CTE coverage
Issue
Insureds with a coverage need
and an insurance market
reluctant to put up large limits
with limited underwriting
information

21. REINSURANCE SOLUTIONS
CTE coverage reimburses a company for lost
profits and extra expenses due to a covered
cause of loss that occurs at the premises of
one of their suppliers or customers.

22. REINSURANCE SOLUTIONS
The contingent property may be specifically
named, or coverage may be blanket over all
suppliers and customers.
CTE coverage is also commonly referred to as
Dependent Properties Coverage or Suppliers
and Customers Extension.

23. REINSURANCE SOLUTIONS
CTE should NOT be thought of as a
“throw-in” or “window dressing”
type of coverage.
WORKING COVERAGE
IT IS

24. PETER HAKENEN
E phakenen@genre.com
IN /in/peterhakenen
T @peterhakenen
Contact your local Gen Re representative
for more insight into supply chain risk and
to discuss reinsurance solutions.
© 2015 General Re Corporation | This presentation is intended to provide background information to
our clients and professional staff. It is time sensitive and may need to be revised and updated periodically.
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