THE GRINCH THAT STOLE CHRISTMAS (THROUGH SUPPLY-CHAIN DISRUPTION)

By Kevin C. Amrhein, CIC, CBIA

“For Christmas this year won’t be ruined by I, but rather by stores all short on supply.” -The Grinch, 2021

Confession: the quote isn’t real. But when it comes to ruining the holidays, there’s a new Grinch in town, and his dirty tricks of choice are empty store shelves and full container ships still waiting to port.

If 2020 will go down in history as “that year we couldn’t do anything,” then 2021’s legacy will be “that year we couldn’t get anything.” Reports of supply shortages are relentless and threaten the livelihood of businesses desperate for raw materials and finished goods. Covid, labor shortages, surging demand, and weather are commonly cited as culprits.

But this is a column about insurance, so here’s why I’m doing this to you. Businesses interested in mitigating the severity of supply-related losses may consider insurance.

FIRST, THE REALLY BAD NEWS

Insuring financial losses stemming from supply-chain disruption is challenging for many reasons. Perhaps the biggest hurdle is the broadness (or more accurately, lack thereof) of available cover. For example, finding a policy that includes governmental action (e.g. ordered port closure due to Covid outbreak) or labor shortage as triggers for coverage will be difficult.

Further, supply-chain disruptions often manifest outside of the United States, creating obvious coverage territory issues for many commercial property insurance policies.

In summary: for many insureds, agents should prepare to play the “this coverage isn’t good but it’s what I can find and I need you to see that I tried” game.

SECOND, THE NOT AS BAD (BUT STILL NOT GOOD) NEWS

A policy which responds to triggers typically covered by commercial property insurance, such as fire or explosion, may be available from some insurers either as a separate policy or by endorsement to the time element coverage. Further, some insurers may offer an option to broaden the coverage territory. Unfortunately, standard property insurers may hesitate to extend coverage to losses occurring at points in the supply-chain, requiring the insured to seek it out in the more restrictive/expensive nonstandard marketplace.

In summary: while there is hope for some insureds, others will find market capacity restricted. Agents will find that for many insureds, all roads lead to E&S.

THIRD, THE GOOD NEWS FOR SOME INSUREDS

While market capacity will prove challenging for some insureds, others may find some coverage for supplychain disruption resulting from a Covered Cause Of Loss is included in the BOP. Other insureds may be able to add some supply-chain coverage using an endorsement like ISO’s CP 15 08 – Business Income From Dependent Properties – Broad Form. Further, the insured may be able to remove coverage territory restrictions through the addition of an endorsement such as ISO’s CP 15 01 – Business Income From Dependent Properties Limited International Coverage.

In summary: if the insured’s class of business helps to negate market capacity challenges, or if the insured has a BOP, the agent may have some coverage already available to discuss with the insured or at least have a cleaner path to a quote.

FOURTH, THE GOOD NEWS FOR EVERYONE

Financial harm resulting from a supply-chain disruption is often a result of risk management. Thus, with proper planning, mitigation is possible for any business regardless of insurability. The P&C agent is well-positioned to start a conversation and get the insured’s wheels turning regarding their place in the chain and contingencies.

In summary: agents can approach any insured with the goal of selling an insurance product. However, agents must concede that lack of a sale does not equal failure. The P&C agent can play a meaningful role in the insured’s effort to preserve its business by simply starting a conversation. In the March 2019 edition of Primary Agent, I wrote a column which provides suggestions for agents willing to have that conversation, as well as a simple strategy for contingency planning. The archive is accessible at issuu.com/primary_ agent. I said it then, and I’ll repeat it today: a conversation about supply-chain management and disruption could SAVE THE LIFE of your insured’s business.

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B's education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com