One of the latest risks facing UK businesses are issues in the supply chain. 
Supply Chain

There have been many headlines and much debate as to why these problems have arisen, and a number of short-term measures have been announced by the Government, arguably to help quell the media storm, but businesses themselves can take action to help mitigate the risks – and the insurance industry can help them.

Broken links in the supply chain can lead to severe disruption and is a risk generally only partially protected by traditional insurance products. The impact of supply chain disruption can cause much more than a temporary financial loss to a business. If an organisation cannot maintain its supply of raw materials or critical component parts, in the wake of a disruptive event it could have a significant and long-term impact on revenues, profits, market position, reputation, or a reduction in investor confidence.

Of course, insurance itself is not immune to the issue with delays in car parts and construction materials having a direct knock on effect on our clients’ claims experience and views of the industry.

A quick look at the scale of the issue. To help fully understand the challenge Gallagher commissioned research amongst 1000 business leaders across the UK on the problem – and three in four of them said their business had been affected by issues in the supply chain in the last year1. But with Gallagher’s risk management expertise we can play an important role in helping our clients manage supply chain risks to ensure they can keep trading successfully, much needed after the turbulent last 18 months.

One issue is that the due diligence process is often not detailed enough when it comes to second or third-tier suppliers, and for many businesses there is a reliance on a single supplier in one part of the chain. This ‘all eggs in one basket’ approach has caused major disruption for some, while for others ‘just in time’ sourcing has not lived up to its name.

Diversification is now very much on the agenda to help manage risk and ensure the supply chain stays strong. In fact, 80% of business leaders told us they are going to make changes their current supply chain arrangements.

In times like this, contract risk management is a vital tool in a businesses’ armoury and it is very important that contracts are understood. The contracts must be considered against the insurance cover in place and a gap analysis exercise carried out. Once identified these gaps must be remedied by deletion or modification of the wordings used. This is a technical job better done by risk management specialists within brokers and insurers.

Robust business continuity plans should be in place, which are regularly reviewed and tested. All organisations, regardless of size, face the risk of business disruption preventing their ability to trade. At these times of stress, businesses need robust continuity management policies and procedures. Brokers and insurers can undertake gap analysis to identify potential weaknesses in existing systems, risk assessments can analyse threats and their likely effects, and the testing and maintenance of a continuity plan, and training of employees can prepare for events.

Talking to businesses about enterprise risk management (ERM) shifts the focus from tactical risk management to encouraging the firm to work ‘as one’ to manage risk proactively. ERM can provide businesses with the confidence and knowledge needed to implement new risk management initiatives, and to manage perceived risks, issues and controls. It will also include the appropriate risk responses; avoidance, reduction, acceptance or sharing.

Finally, trade credit insurance is a key tool when risks are changing. This can be used not only to help protect against bad debt, but also to protect against non-delivery through the supply chain. Trade credit has seen a step change in product development over recent years and historically seen as only an option for largest firms, innovation has seen new products become available, that can insure against specific projects, or clients at a small one off cost – making the cover affordable and accessible to even the smallest of businesses.

The insurance sector can play a pivotal role in helping business trade and with our knowledge and products we can give them confidence and resilience to overcome just one of the current challenges they face.

1. All data unless otherwise stated is taken from research conducted by Opinium, between 9th and 16th September 2021, amongst 1000 senior decision makers in UK businesses.

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher. FP number. FP1362-2021