Manufacturers should fully understand risks to optimize insurance coverage

While insurance for contingent business interruption or supply chain risk can help mitigate manufacturers' risks, they need to fully understand their exposures to make the best use of their coverage strategies.

“It's not just insurance,” said Thomas A. Lawson, president of FM Global, Johnston, Rhode Island. “You want to look at that supply chain or that manufacturing process and identify where a company is most at risk,” then mitigate such risks.

It's important to consider different types of supply chain disruptions, including cyber events that could prevent a company from selling its products or operating its equipment, and insurance needs to cover data damage and denial of access, he said.

Michael LoGiudice, managing director at CBIZ Valuation Group L.L.C. in Chicago, said insurance should cover transportation time and how that might change during a disruption. In some cases, getting such coverage requires manuscript policies, he said. Smaller businesses might find insurers unwilling to provide a manu-script policy, making it necessary to secure needed coverage through endorsements, he said.

It's also necessary to consider inventory balance, as a supply chain disruption might allow a company to meet only some of its orders. “The language that you would like to see in your insurance policy is that the interruption isn't over until your production is as back to normal as possible,” Mr. LoGiudice said.

Firms moving suppliers closer to the U.S. should see a reduction in their overall risks while increasing supply chain transparency, said Philip Reardon, director at Aon Global Risk Consulting in Chicago. “I think you would have a better opportunity with your own insurers if you could demonstrate you were bringing those activities back to the U.S.,” he said.