Business, interrupted

When a business stops producing at capacity, even for a short time, the financial flow-on can potentially be devastating. For brokers, it’s important to understand your client’s plan B to get a clearer picture of the risk profile – and to help them build resilience.

Recent supply chain issues first started alongside the COVID-19 pandemic, but the end of lockdowns has not seen supply and demand even out.

In the plants, machinery, and vehicles sector, waiting for parts is still a major pain point and can cause significant disruption to your client’s business if they don’t have strategies in place.

“It’s important to understand your client’s business and its business continuity plan,” says Kenji Hosaka, Risk Manager at Allianz Risk Consulting Australia.

“So if one supplier is out, then what can we do? And often we do have options to get alternative suppliers and alternative products.”

Brokers can help clients minimise risk by negotiating long indemnity periods, which can offer businesses support when they need it most.

Head of Interruption Underwriting Agencies, Christopher Connolly, says brokers should ensure clients have a minimum cover of two years, with some businesses needing three to five years of cover.

“I’m insuring your turnover, and if you’re not back up and running in 12 months, the policy finishes and then you’re left out on a limb,” he says.

Vehicle supply

Since Australia stopped making vehicles in 2017, we’ve become more reliant on vehicles and parts from overseas.

There are several reasons for the supply chain hold-ups of late, but this one might surprise you.

“It’s gone from issues with COVID-19 to microchip shortages, and now for Australian vehicles supply, it’s bugs,” says Chris Wood, Automotive Risk Manager and Technical Specialist from Allianz, “Bugs and grubs.”

“Because of the other supply chain issues, the vehicles have been sitting out in fields around the world, and what customers have discovered is that a lot of the cars have been found with bugs and other things attached to them.

“In Australia, we’re pretty good at protecting our agricultural industries, so what happens is every 100 vehicles they do an inspection, and if they find any bugs those 100 vehicles have to be quarantined.”

It’s an interesting example of how everything in the global supply chain is inherently linked, and these relationships can have ripple effects far and wide.

New risks in renewables

You don’t have to look far to find appliances, tools and machinery run on electrics. Specifically, lithium batteries that can be powered by the sun. These renewable energy choices mean running costs can be reduced along with their carbon footprint, which is a great thing, but there are risks too.

“When we think about installing these electrified solutions, we are talking about minimising cost, and coming up with a contingency plan, “ says Hosaka.

“So, if the grid is out, we can still maintain the business by using batteries. And if we’re installing solar panels, we still have the option to go offline so we can run the factory.”

As is the way with new technologies, a broker’s best defence is knowledge.

“Know the client’s business, know their products, know their services, know their activities,” says Hosaka.

“So, if the client is thinking about using lithium batteries, electrified systems or energy storage, then they can contact the underwriting team or insurance company, and they have lots of knowledge about managing those risks and pricing them.”

Staff shortages set to continue

Staff shortages are intensifying the business interruption caused by supply issues.

Even when everything is up and running, retail and hospitality, in particular, are often not working to full capacity because they can’t find the staff. And that reduction can be detrimental, especially in this financial climate.

“And so not only is there inflation and people aren’t coming [to restaurants and shops], but then you can’t operate your restaurant or retail at full scale because you can’t get the staff to support it,” says Connolly.

“This has been going on now for two years, and it doesn’t look like it’s going to change.”

His advice? Brokers must be careful not to underinsure.

“It’s a commercial decision for the business. Generally, in the market they have to insure the full values otherwise, they’ll penalise themselves, and that’s where it hurts.”

Communication is key

Getting insurance coverage just right in the current financial climate is challenging – and the best way for brokers to help their clients is to talk with them.

“I think now, more than ever, is a great time to engage in conversation with your customers. There’s never been a better time to talk more about the business and what the business depends on,” says Wood.

Tips for brokers

1. Long indemnity periods of two-five years will help cover turnover.

2. Diversifying where and how a business imports its products can help to ensure productivity.

3. New technologies in the renewables space have helped profit margins but there should be a contingency plan to keep businesses running if renewables fail.

4. Consider the impacts that staff shortages are having in reducing the overall level of productivity and exacerbating business interruption caused by supply chain issues.

5. Communication between client, broker and insurer helps to educate clients about potential risks.