Written by Unison Risk Advisors
Innovate Your Approach to Mitigating Supply Chain Risk
Supply chains are facing myriad challenges in today’s dynamic global market. And any disruptions to these complex networks can be more than a temporary inconvenience for manufacturers, they can be a serious financial threat.
Disruptions from the COVID-19 pandemic, natural disasters and labor strikes at U.S. ports are causing devastating delays. Not to mention, high interest rates, increased material costs due to inflation and tariffs, and labor shortages are forcing manufacturers to change the way they do business, like switching materials or suppliers to survive.
In today’s uncertain environment, manufacturers are carrying more risk — in an industry where margins are typically thin already. That’s why more and more manufacturers are using insurance to seek innovative solutions to mitigate these vulnerabilities and keep the focus on smooth operations.
Supply Chain Risk Management
Having a solid risk management strategy backed by insurance is the key to surviving the unexpected. It takes the risk off a manufacturer’s balance sheet and, for a fee, puts it on someone else’s. In an uncertain environment, insurance gives manufacturers certainty about how their vulnerabilities will affect their balance sheet.
That’s why many manufacturers are moving beyond traditional coverage and adopting an insurance program. Here are a few insurance plans manufacturers rely on to keep business operations up and running:
Business Interruption Insurance
Unexpected events can and do happen. Theft, natural disasters and equipment breakdowns can create extra expenses and lost income that a business didn’t plan on. Maybe a fire damages the manufacturing facility and destroys merchandise not yet sold and forces the facility to shut down for repairs.
Business interruption insurance, also known as business income insurance, protects against lost income and ongoing expenses related to such events. It’s a safety net that enables manufacturers to stay afloat financially, while operations are disrupted.
Captive Insurance
For difficult-to-insure losses that aren’t available in the traditional insurance marketplace, captive insurance can be a creative solution. Captive insurance can fill in the gaps by offering a wide range of supplier-related issues, including the loss of a key customer.
A form of self-insurance, manufacturers create a separate, licensed entity — the captive. So instead of paying premiums to a commercial insurance company, the business pays premiums to its own captive — and collects the profits instead of the traditional insurance company, while enjoying customized coverage and increased control.
Trade Credit Insurance
Manufacturers must extend credit to do business and grow. And many mid-market manufacturers leverage the carrier’s resources to act as their internal credit department. But that comes with risks. Customers can go into debt and maybe even file bankruptcy, leaving the manufacturer unpaid.
Trade credit insurance, also known as accounts receivable insurance, is a financial safeguard that protects manufacturers against unpaid receivables. So, the business gets paid — and their cash flow is protected — even if their customer defaults on debts.
Inland Marine Insurance
When manufacturing goods, products are constantly in motion and changing hands, which opens businesses up to many exposures, like theft, vehicle accidents and damaging weather events.
Despite its name, inland marine insurance has nothing to do with water. It protects moveable goods or property that’s in transit or being stored off-site. It covers damages against moving goods, tools, equipment, materials and more.
Commercial Property Insurance
Protecting the manufacturing plant and equipment is key to keeping operations running smoothly.
Commercial property insurance, also known as business personal property insurance, offers financial protection against damage or loss to property, including the facility, tools and equipment, inventory, technology and even furniture. Beware though, minor things hidden deep in policy language like coinsurance clauses or protective safeguard endorsements can spur surprises in the event of a claim.
Why Proactive Protection is Crucial
But what if a manufacturer isn’t experiencing disruptions in its supply chain and operations are running smoothly? Is supply chain risk management insurance necessary?
Even if there are no issues today, manufacturers still have risk. Global supply chains are unpredictable. And when a business relies on key suppliers and long, complex supply chains, managing vulnerabilities is imperative.
Risk management insurance ensures there’s a plan in place in case the unexpected occurs. Because if and when a problem arises, risk management could mean the difference between bankruptcy and smooth operations.
And if you already have coverage, regularly reviewing and identifying vulnerabilities and then updating your supply chain risk management insurance strategies are important — and not just at renewal time. Things can change fast — sometimes without warning.
Our team understands supply chain risk management requires a tailored approach. We work closely with our clients to continually develop insurance strategies and business continuity plans that address the specific needs of manufacturers in a dynamic global market.
For more information, please complete the form below to connect with our team.
