Experts say the impact of the Suez Canal crisis on companies around the world could last for weeks. The crisis highlights the importance of specialty insurance products like business interruption insurance and supply chain insurance.
The 1,300-foot-long, 220,000-ton Ever Given ran aground on March 23, 2021, after losing the ability to steer amid high winds and a dust storm, according to the Suez Canal Authority. The accident blocked shipping for almost a week through one of the most crucial waterways on earth, creating a major ongoing disruption on global shipments.
Disruptions to U.S. Industries
Forbes contributor Edward Segal says Dun & Bradstreet took a dive into the data for the U.S. and Europe. Segal says D&B’s data and analytics experts found that the top 10 U.S. industries that will be impacted by the crisis are:
- Grocery stores
- Department Stores
- Auto and home supply stores
- Hardware stores
- Surgical and medical equipment suppliers
- Plumbing, heating and air-conditioning
- General warehousing and storage
- Sporting goods
According to Bloomberg, at least 12 American grain shipments have been impacted by the Suez congestion, representing about 7% of all seaborne US grain exports. Some of those shipments originated from the lower Mississippi River region.
According to the Insurance Information Institute, specialty insurance policies, including contingent business interruption (CBI) insurance and supply chain insurance can limit your exposure to loss. These types of insurance reimburse your business for lost profits and related costs caused by disruptions in your supply chain even if your company itself has not suffered any damage.
Contingent Business Interruption (CBI) Insurance
III says Contingent business Interruption, or CBI, coverage can provide an important line of defense against losses caused by disruptions at your suppliers or downstream customers. This type of insurance is limited. It only provides coverage if the businesses you depend on are disrupted by physical property damage. An example would be a fire at a supplier’s factory that caused it to cease operations. CBI does not protect against all disruptions. CBI may not cover cases where roads are closed and employees cannot get to work or when products cannot be distributed or other suppliers are affected.
Supply Chain Coverage
III says Supply Chain Insurance provides far broader coverage than CBI insurance. In addition to covering disruptions caused by property damage to your suppliers’ or downstream customers’ businesses, supply chain insurance can cover losses caused by a wide range of events. Those include:
- Natural disasters
- Industrial accidents
- Labor issues (strikes, shortages, etc.)
- Production process problems
- Political upheaval, war, civil strife
- Riots or other disruptive civic action
- Closure of roads, bridges, or other transportation infrastructure
- Public health emergencies; e.g., pandemics requiring quarantine
- Regulatory action
- Financial issues; e.g., solvency, cash flow problems
- Suppliers in less politically stable nations or in places with more vulnerable infrastructure may be more prone to disruption
Some insurers are moving towards offering multi-tier coverage, where the whole supply chain is insured.
Limit Your Exposure
Experts say you should also make sure you limit your exposure to supply chain risk in order to prevent problems in the first place. Brian Alster, general manager for third party and risk and compliance for Dun & Bradstreet told Segal, “The Suez Canal incident gives us yet another reason for businesses to invest in data and technology to create an agile, geographically dispersed supply chain that can quickly pivot during unexpected events”. Alster went on to say that “companies must develop a data-driven risk-based assessment process to identify and continuously monitor a variety of risks that could impact the productivity of their supply chain—creating a more flexible and agile network that can quickly pivot in any circumstance or during any unexpected event.”
If you’re looking to protect your business from supply chain disruptions through either Contingent Business Interruption coverage or Supply Chain coverage, Farris Insurance can help. We serve businesses across Northwest Arkansas, including those in Springdale, Fayetteville, Bentonville, Rogers, and throughout Benton and Washington Counties. Contact us today at (479) 756 – 6330.