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ARC: WHAT COMPANIES NEED TO KNOW TO PROTECT THEMSELVES FROM REPUTATION RISKS

In-depth supply chain research can prevent future reputation damage

Supply Chain Business

In-depth information about an organization's supply chain can help avoid reputation-damaging disruptions and help insurers underwriting supply chain coverage.

While such data can be costly for companies to gather and interpret, it may be a cost worth considering, experts say.

Jeffrey Beauman, FM Global's Johnston, R.I.-based vice president and manager of all-risk underwriting, said U.S. building codes are an integral part of physical hazard analysis. “When you move into other parts of the world, that same level of building code is not as well developed,” he said.

“If you're going to do business with a third party in other parts of the world, you need to change your assumptions about what fundamental property loss prevention systems might be in place,” Mr. Beauman said. “From an underwriting perspective, we approach managing that transfer of risk from the level of information that is available.”

Companies operating abroad also understand risks related to nondamage business interruption, such as political unrest, environmental violations and poor working conditions, among others, experts say.

“You now have to look at a number of risks,” said Tom Teixeira, London-based partner in the global solutions consulting group for Willis Group Holdings P.L.C. “In many cases, it's those that are related to nondamage business interruption that could lead to the reputational impact.”

Companies need the right degree of visibility and a supply chain that operates ethically with the right quality, health and safety standards, he said.

“Creating that framework of visibility can be done, but it is expensive,” Mr. Teixeira said. “It is a cost these companies now really need to consider absorbing.”

“With this data more available now, it falls very much in line with what underwriters need. The better the quality data you could provide to the underwriter, ultimately the lower the price,” he said.

With the proper underwriting data, Allianz S.E. offers a bespoke business interruption and contingent business interruption policy that includes nondamage perils such as political unrest and labor strikes, the Munich-based insurer said in a November report.

Allianz requires a buyer to provide “information about its suppliers' and customers' sites and transport routes at a minimum” to underwrite the cover, according to the report.

With greater understanding of a company's global exposures, “you're always going to be in a better position to better underwrite a risk,” said Tom Varney, Chicago-based head of risk consulting for Allianz Global Corporate & Specialty.

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