COVID and the Global Supply Chain: Why the Risk Has Become Substantially More Challenging

Managing global supply chain risk during COVID-19 has required a drastic turn from the old ways of supply chain risk management.
By: | September 29, 2020

Managing global supply chain risk has become both more important and more challenging in recent years, and the COVID-19 global pandemic has destroyed any tattered remnants that remained of the old way of supply chain risk management.


Companies widely understand that diversity of thought is integral to any team’s success, and the principle of duplication remains an important risk reduction strategy as part of an overall risk management plan. But when it comes to global supply chains, businesses have often developed only one strand on their chain — one supplier or manufacturer of a necessary component or process from raw material through production to final consumable product.

Perhaps it is the same supplier they have always used, or they have not had the time or money to invest in a strategic review of their supply chain.

Whatever the reason for the gap, it is highlighted during extreme times. We have seen cracks in the global supply chain before — for example Apple’s issues with securing vital raw materials for its iPhones that have plagued the company for several years even before the global pandemic issues of 2020 — however the weaknesses brought to light during COVID-19 have far exceeded previous small-scale supply chain issues.

Thomas Holzheu, chief economist for the Americas at Swiss Re, commented, “COVID-19 has highlighted vulnerabilities in the medical manufacturing supply chain. Government response to COVID-19 has shown that in times of crisis, international cooperation can be interrupted, as countries prioritize according to their domestic needs. As in the supply chain of several other industries, medical supply manufacturers struggled to get the raw materials for their products when the Chinese factories closed for weeks in the early stages of the pandemic.”

During the height of the outbreak in the U.S., commercial flights were interrupted, causing chaos in many supply chains. The Department of Defense was able to create an “air bridge” during this time to secure necessary medical supplies, but private companies do not have the capacity to do that.

Insecurities in the global supply chain caused by the pandemic have, for many industries, prioritized the need to diversify their supply chain.

Some ways to do this are by creating parallel supply chains; investing in domestic resources to replace foreign manufacturers; and utilizing emerging technology, such as robotics, to enhance the supply chain. These changes to the global supply chain also bring new risks that will need to be considered.

In its recently published report “De-risking global supply chains: rebalancing to strengthen resilience,” Swiss Re examines the “new normal” of supply chains in a post-pandemic world.

Researchers found new opportunities for insurers will result in around $63 billion in additional premium globally over the five-year transition period, which will include $1.2 billion out of new demands for engineering covers and $9 billion for commercial insurance to cover newly built facilities.

The report predicts greater development of parallel supply chains with new sources being built up in southeast Asia to produce alongside Chinese operations. Swiss Re also found that some repatriating of suppliers back to their home markets in the U.S., Europe and Asia will occur, as well.

Emerging Risks Created by New Supply Chains

With progress comes pain, or in this case, new risks, to be considered and managed.

New business partners and vendors could introduce novel geographic, political or exchange rate risks depending on their location.


New suppliers are an unknown — they may fail to fulfill the contract or may be mismanaged, passing those risks along to their partners. Construction of a parallel supply chain or a new manufacturing location creates construction, engineering and environmental risk during and after the build. The upcoming U.S. presidential election and Brexit-related changes in the UK may alter government policies and trade restrictions, creating supply chain challenges.

New reputation risk is created, as well.

Consumers expect companies to be transparent about their suppliers and to ensure their supply chain is free of harm, such as that of child labor or poor working conditions.

Holzheu said, “The current restructuring of the global supply chains are undermining the goal to increase transparency about upstream suppliers and downstream customers.”

Rushing to find new suppliers due to pandemic-related shortages can be problematic when little is known about the new supplier. The Swiss Re sigma report also noted that prior globalization of the supply chain brought about efficiencies that may be lost or reduced if the use of global suppliers diminishes and local sources are developed instead.

Ways to Mitigate New Supply Chain Risks

One novel way to mitigate some of these newly created risks is through the creation of digital supply networks (DSNs).

As the name implies, updates and information related to the supply chain is transmitted digitally, giving the benefit of instant knowledge-sharing between remote locations. This reduces downtime should a particular link in the supply chain fail or experience a delay; the faster others know of the failure the sooner the process can be restarted, re-routed or remedied.

The digital nature of the DSN helps solve the transparency issue, as well.

With a digital supply chain, problems, solutions and information are all readily available to consumers and business partners alike.

“Digital technologies offer a way to better understand the supply chain in terms of risk identification, assessment and monitoring,” Holzheu said. “For example, an end-to-end data platform can go a long way to reduce operational risk by ensuring data security and the sharing of critical information with all stakeholders along a supply chain.”


Insurance solutions to help mitigate supply chain risk have traditionally included business interruption and contingency business interruption coverage, non-damage business interruption, cyber, political and supply chain insurance.

Now, with more businesses moving to DSNs, cyber coverage may need to expand and could become more important than other types of coverage. Swiss Re points out the growth in alternative manufacturing processes, such as 3D printing, allowing for smaller quantity production with easier product differentiation. This could mean a change to the traditional BI policy to cover the equipment, new vendors and different materials and risks.

Agents should understand these changes to better advise their customers. &

Abi Potter Clough, MBA, CPCU, is a keynote speaker, author and business consultant focused on leadership and strategy, personal branding, Insurtech and international risk management. She has over 15 years of experience at a Fortune 500 company with expertise in P&C claims operational leadership, lean management consulting, digital communications and Insurtech. She chairs the International Insurance Interest Group of the CPCU Society and devotes time to many international risk management projects. She holds many insurance industry designations. Abi can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.


As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.


Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &


Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]