Partnering to insure supply chain riskEdi Schmid

Group Chief Underwriting Officer

15th CRO Assembly, 22 May 2019

Business interruption and supply chain-related

losses typically comprise 50-70% of insured

property catastrophe losses

A high proportion of supply chain losses are

uninsured

large protection gap

Supply chain risk is top-of-mind in the C-Suite of corporates and their re/insurers

2

40

36

33

27

20

18

17

14

12

12

Business interruption / supply chain disruption

Cyber incidents

Natural catastrophes

Market developments

Changes in legislation and regulation

Fire/explosion

New technologies

Shortage of skilled workforce

Climate change

Loss of reputation or brand value

Leading risks to businesses in the U.S. 2018Source: Allianz Risk Barometer

BI insurance covers clients’ lost profits and incremental costs in the event an insured peril damages or destroys a

covered property and interrupts production

Business interruption (BI) insurance is an important way to cover the risk of costly supply chain disruptions

3

Suppliers Insured Insurer

Contingent business

interruption (CBI)

covers disruptions at

the insured’s supplier

Business interruption (BI)

covers client’s disruptions

Reinsurer

insurance

contract

Business

interruption (BI)

Contingent Business

interruption (CBI)

Physical

damage

e.g., fire at

insured’s factory

e.g., fire at factory of

insured’s supplier

Non-physical

damage

e.g., cyber attack

on insured’s

facilities

e.g., transport

disruption delays

supplies

with increasing complexity, insurers need more transparency on global supply chains

The insurance industry has innovated significantly over the past 25 years and contingent business interruption has grown

4

• covered more perils

• covered non-physical damage business interruption

• introduced index-based (parametric) products

Swiss Re’s P&C reinsurance solutions team can advise insurance clients on supply chain risks and reinsure them

RIMS 2019

AXA XL and Swiss Re join

forces on supply chain

https://www.swissre.com/

reinsurance/property-and-

casualty/solutions.html

6

The dry and warm summer of 2018

left water levels of most rivers in

Europe at record low levels

Shipping was disrupted

• alternative modes of transport

triggered additional costs

• Production was impacted

Swiss Re Corporate Solutions crafts innovative parametric nat cat solutions to address supply chain risk for clients

7

“FLOW” pays policyholder a

fixed amount per day if the river

level is outside a given range

8

Swiss Re Corporate Solutions adds non-physical damage to CBI cover

The closure of a small stretch of track

near Rastatt, Germany on Europe’s

busiest rail corridor interrupted cargo

shipments between Karlsruhe and

Basel for 7 weeks in 2017

� Offer stand-alone combined non-physical damage

(NDBI) along with contingent damage business

interruption (CBI) policy covering fire, natural perils and

supervisory / safety regulations

A detailed

understanding of

transport

vulnerabilities and

clients’ supply

chain is critical for

the insurer

Goal is to identify supplier/product combinations that are unique and critical to an insured

Mapping supply chains is critical to managing and insuring supply chain risks

9

Magnesium

die casting

ProductMeridian

Lightweight

(US)

Supplier

China

Supplier

Germany

…

Insured

Suppliers Insight: Spartanburg SC production is

reliant upon one US-based supplier

• Data submitted by corporates to insurers often lacks critical details to enable identification of bottlenecks

– locations

– Tier 2 suppliers

– back-up inventory levels

– …

• No standardized format (template) to exchange data like for property and life insurance

Mapping supply chains is arduous work

10

External data -

often unstructured

but increasingly

accessible - can

be integrated

Detailed company

information on

suppliers and

products

• Helps insurance clients develop more robust business

continuity plans

• Helps re/insurers offer more coverage…

– better define risk appetite

– manage accumulation risk - Re/insurers need to

construct the supply chain for the entire industry, not just

for a single company

– develop innovative insurance solutions (e.g., parametric

triggers)

… to close the protection gap

Constructing and sharing supply chain maps is worth the investment

11

12

We need to work together to increase supply chain risk coverage

Low High

Likelihood Likelihood

High

impact

Low

impact

Peril

Peril

Peril

You have seen how DHL helps clients

construct their supply chain maps

You have seen how Swiss Re continually scans for emerging

risks

Now we need to work together to

ease and standardize the exchange of

supply chain data