Supply Chain Risks

Breaking the Chain

Reliance on supply chains has hiked the number of business interruption claims, which cost nearly one-third more than property claims.
By: | February 4, 2015 • 5 min read

The increasing interconnectivity between businesses and their customers and suppliers has resulted in a large rise in business interruption (BI) and supply chain claims, according to industry experts.

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Combined with a greater frequency and severity of natural disasters and extreme weather globally, as well as growing geo-political instability and unrest, this has left companies more exposed than ever before.

The Allianz Risk Barometer 2015 survey released in January revealed that BI and supply chain risk is the No. 1 peril for the third year running, with 46 percent of respondents rating it one of the three highest risks for firms.

“But because no single party owns the whole supply chain process it makes it hard to establish where the risk lies and how to measure it, particularly in areas such as cyber where there are multiple layers of ownership.” — Gary Lynch, founder and CEO, The Risk Project

The study found that the average BI claim at $1.36 million is 32 percent higher than the average property damage claim at $1.03 million, with the subsequent disruption amounting to more than the initial physical damage.

Gary Lynch, founder and CEO, The Risk Project

Gary Lynch, founder and CEO, The Risk Project

Gary Lynch, founder and CEO of The Risk Project, a supply chain risk management specialist, said that complex supply chains shared by multiple parties with different business models “inherently” had a large degree of risk attached to them.

“One of the biggest challenges from a risk manager’s perspective is that not only do they have to understand a company’s operating model, but also the broader economic model and the models of their business partners,” he said.

“But because no single party owns the whole supply chain process it makes it hard to establish where the risk lies and how to measure it, particularly in areas such as cyber where there are multiple layers of ownership.

“There’s no doubt that this increased interconnectivity is resulting in greater claims.”

Outsourcing Increases Complexity

Brian Kirwan, head of market management at Allianz Global Corporate & Specialty (AGCS) Regional Unit London, said that supply chain risk had been exacerbated by the global trend toward outsourcing over the last few years, adding to its complexity.

“What we are seeing is that continued globalization is creating complexity in the supply chain, which is the biggest challenge for risk managers.” — Brian Kirwan, head of market management, Allianz Global Corporate & Specialty Regional Unit London

“What we are seeing is that continued globalization is creating complexity in the supply chain, which is the biggest challenge for risk managers,” he said.

In addition, he said that BI losses as a proportion of an overall claim were also on the increase, which, in turn, was having a significant impact on company revenue.

“The first key component to get to grips with this is understanding the critical pieces of the supply chain, including the suppliers, and what impacts them — not only the credit risks, but also the catastrophe and insurance risks, as well as the concentration of risks,” he said.

Paul Carter, global head of risk consulting at AGCS SE, added: “Businesses spend a lot of time assessing direct damage and looking at their own BI impact but more work needs to be done analyzing the risks associated with suppliers and customers.”

Perry Rotella, group executive, Verisk supply chain risk analytics business

Perry Rotella, group executive, Verisk supply chain risk analytics business

Perry Rotella, group executive of Verisk’s supply chain risk analytics business, said that the main problem is while companies may have visibility of their direct suppliers, often they don’t have the necessary oversight of how the supply chain fits together and the geographical areas their production sites are located, as with the Thai floods in 2011.

“This increase in complexity combined with a growing number of natural disasters, extreme weather and geo-political instability has increased the risk for companies,” he said.

He added that, further down the line, the slightest supply chain disruption can have a knock-on effect, causing a company’s share price to drop, on average, by 7 percent, and often taking months to recover its value.

Chris Fischer Hirs, CEO of AGCS SE, added: “The growing interdependency of many industries and processes means businesses are now exposed to an increasing number of disruptive scenarios.”

The company’s survey of more than 500 risk managers across 47 countries found that the causes of BI that companies feared most were fire/explosion (43 percent) and natural catastrophes (41 percent).

Second only to BI and supply chain risks were natural catastrophes (30 percent) and fire/explosion (27 percent), according to the report.

Cyber (17 percent) and political risks (11 percent) were the biggest movers. Cyber crime/IT failures moved into the top five business risk ranking for the first time and are now among the top three risks in the U.S.

Meanwhile, loss of reputation (61 percent) and BI (49 percent) were cited as the main causes of economic loss following an incident.

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But despite the increased awareness of cyber risks, many companies still underestimated the different impacts of it on their business, according to 73 percent of respondents.

Political/social upheaval was also a much bigger concern for businesses, climbing nine places to ninth. It’s also the second biggest cause of supply chain disruption (53 percent) after natural catastrophes, said the report.

By sector, the survey found that natural catastrophes remain the main risk for the engineering and construction industry, while BI is the biggest threat for manufacturers, and legislative and regulatory changes are top of the agenda in financial services.

Long-term, climate change and natural catastrophes, as well as so-called “disruptive technologies” such as 3D-printing and nanotechnology remain the biggest threats to companies, the report concluded.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

Mohegan Gaming’s director of risk management recognizes the value of the people around her in creating success.  
By: | February 20, 2018 • 4 min read

R&I: What was your first job?

I was a margin clerk in financial futures at Kidder Peabody & Company.

R&I: How did you come to work in risk management?

While I was at General Dynamics working in HR, the opportunity to transition to risk management was afforded to me. I was very fortunate that the risk manager at the time took a chance on me and taught me so very much. Coming from a manufacturing facility with multiple unions helped prepare me for any situation.

R&I: How has your experience in human resources helped your career in risk management? What do the positions have in common?

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I believe my HR background has helped my risk management career immensely. Both areas are interrelated. People are fundamental to accomplishing goals and people can help or hinder those results. Human resources is tasked with bringing in and nurturing the right people, and risk management is tasked with keeping them safe.

R&I: What is the risk management community doing right?

Education, keeping up with industry trends and having resources available to better prepare organizations. There is always something new or a new way to view a situation.

Mary Lou Morrissette, corporate director of risk management, Mohegan Gaming & Entertainment

R&I: What kind of resources can risk managers bring to the table?

Data and analytics have come so far, and the systems out there are able to drill down into good quality information that can be used more effectively.

R&I: What could the risk management community be doing a better job of?

Within the community, we all understand the role of risk management, but getting organizations to understand the importance of considering risk during the strategic decision-making process as opposed to treating it like an after-thought can be a challenge. Risk should be involved in day-to-day operations — not just when a problem arises.

R&I: What was the best location for the RIMS conference and why?

San Diego. The proximity to the city, community and culture was great.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

The emergence of cyber security.

R&I: What emerging commercial risk most concerns you?

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Catastrophic events, both natural and manmade, are becoming more of a norm of late. We need to look at analytics and the role they play in understanding these disasters and subsequent losses to help organizations prepare, manage and recover from these types of events.

R&I: What insurance carrier do you have the highest opinion of?

We have always valued relationships. We have a few long-standing partners that immediately come to mind. FM Global, Great American and Safety National have all been immensely important to our company and our growth.

R&I: How much business do you do direct versus going through a broker?

All through a broker.

R&I: Is the contingent commission controversy overblown?

If you have trust and faith in your broker and they have full disclosure, then yes, it is overblown. But I have seen the cost of hidden commissions and the effect on the bottom line.

R&I: Who is your mentor and why?

I had a mentor early on in my career in HR, Marie Haggerty. She instilled in me the mindset to speak up and be heard and not to shy away from an adverse opinion but to be strong in my convictions.

R&I: What have you accomplished that you are proudest of?

Being awarded FM Global’s Highly Protected Risk award in 2011. The award is granted when a location has no human element recommendations, no uncontrolled high-risk exposures and no other major loss exposures. Mohegan Sun has worked hand-in-hand with FM since 2000 on loss prevention recommendations and improvements. Our engineering team as well as our fire department have been instrumental in our ability to achieve this award. We have always tried to meet or exceed the advice we receive from FM’s engineers. This has made our property better protected as well as helped to keep our premium in line.

R&I: How many e-mails do you get in a day?

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Too many!

R&I: What is your favorite book or movie?

I only read nonfiction and personal development books. Katie Couric’s “The Best Advice I Ever Got: Lessons from Extraordinary Lives” is one of my favorites.

R&I: What is your favorite drink?

Coffee and water.

R&I: What is the most unusual/interesting place you have ever visited?

The Pearl Harbor memorial. I love history and to stand over the Arizona was humbling.

R&I: What is the riskiest activity you ever engaged in?

Parasailing.

R&I: What about this work do you find the most fulfilling or rewarding?

That I can make a difference in either a safer workplace or on the bottom line, and that every day is different. I love the diversity of what I do and the constant change and ability to continue to grow and learn.

R&I: What do your friends and family think you do?

I definitely get the deer in the headlights look when I tell people what I do — I don’t think any of my family or friends truly understand it.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]