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Risk managers who recognize the need to clearly define and quantify their supply chain risks for insurers to try to take advantage of better coverage pricing can find that a difficult task, experts say.
“What we try to do is to provide a list of suppliers to the insurers and what the insurers try to do is try to hold us to that list, even though that is kind of a fluid situation,” Rick Vassar, general manager of risk for Volkswagen Group of America Inc. in Herndon, Va., said of supply chain risks.
“While we have a very good handle on our own manufacturing facilities, identifying and assessing all of the risks associated with our external partners is an area where we are focusing much more attention,” said Scott P. Borup, director of corporate risk management for Johnson & Johnson in New Brunswick, N.J.
Johnson & Johnson is addressing this challenge by working very closely with its operating units to understand who and where key suppliers are in efforts to better understand the risk. Part of the process includes working with its lead insurer to conduct on-site supplier inspections and use any recommendations from the inspections to mitigate risk, either through physical improvements or contingency planning, Mr. Borup said.
“If the insurance companies can better understand and underwrite the risk, they're going to be more willing to provide enhanced terms,” he said.
Johnson & Johnson purchases contingent time element extended coverage from unnamed multiple carriers, which protects it from interruptions caused by suppliers that cannot be easily identified down the supply chain, Mr. Borup said.
“I think the losses in Japan recently and in Thailand, with the floods recently, are perfect examples of why that coverage is essential,” he said.