The supply chain insurance category is anticipated to grow at a CAGR of 4.5% from 2023 to 2030. There are several possible risks and interruptions for supply chain enterprises. Due to the intricate web of interactions between vendors, suppliers, and customers, a break in one link in the supply chain can result in bigger losses in several other links. For companies whose activities are directly dependent on a major supplier's manufacturing capacity, supply chain insurance coverage is crucial.

In 2021, according to Morningstar, the COVID-19 pandemic exposed the limitations of business interruption insurance. As a result of this, there has been an increased demand for supply chain insurance significantly. Insurance companies have expanded their offerings and coverage beyond their regular Business Interruption (BI) and Contingent Business Interruption (CBI) policies. As corporations seek more extensive coverages and risk transfer instruments, the pandemic's challenges to the global supply chain have presented new economic possibilities for many insurance and reinsurance companies. For instance, even though BI insurance is meant to cover losses due to physical damage, the pandemic caused a significant number of BI claims in many nations, which increased insurance company litigation and presented many difficulties for the sector. This is because the product was not priced to cover pandemic losses. In addition, in 2021, a few instances of unfavorable occurrences were the severe winter storm, URI, in Texas, the closure of the Suez Canal, and the cyberattack on the Colonial Pipeline Company. This, in turn, compounded the problems that the supply chain is facing. All such factors have contributed to the increasing requirement for supply chain insurance worldwide.

The supply chain insurance category is fragmented. Companies (or, category buyers), following the pandemic and several prolonged supply chain disruptions, have started collaborating and working with risk management professionals, trusted brokers and coverage counsel to better assess and evaluate the impacted business' insurance program. Category suppliers have broadened their coverage to include aspects such as Non-Damage Business Interruption (NDBI) Insurance, Product Recall Insurance, Stock Throughput (STP) Insurance, Trade Disruption Insurance (TDI), Terrorism Insurance, Political Risk Insurance, and Cyber Insurance. This has increased the competitive rivalry among providers and reduced the bargaining power to moderate.

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There has also been an emergence of parametric insurance solution providers for particularly nuanced or self-contained risks. Latest technology such as blockchain, enhanced automation, and real-time IoT data processing are facilitating the rise of parametric-enabled digital insurance products. By using real-time analytics to monitor the indemnified risk, these solutions compensate the risk of occurrence of a pre-defined event. In the event that the risk under observation violates a pre-established condition, the violation will result in the payment of a pre-arranged claim. Insurance providers have also been found to establish “strategic partnership” teams that are mainly responsible for top-tier companies.

Some of the key cost components include the salaries of insurance consultants/professionals, technology and software, claim expenses, tax, legal and underwriting, marketing, facilities/rent and others. The “claims function” is an important and strategic asset for modern insurance companies. However, the level of insight and influence the function can have on an organization is widely underutilized. KPMG reported that the costs of the claims supply chain may account for up to 80% of the overall indemnity expenditure and are a crucial part of the entire claims process. Similarly, salaries form an important component as the personnel are responsible for developing different policies. Insurance managers’ salaries in the U.S. can range from USD 86,000 - 90,000 annually. Salaries can increase based on expertise, years of experience, and other factors.

Technology is another important cost component. The lack of accurate, timely, and credible visibility into the claims lifecycle and supplier actions for insurance providers can result in increased costs, delays, and dissatisfaction between supplier-client relationships. Hence, insurance companies are increasingly implementing advanced digital technologies to provide higher cost savings and claim updates to companies, improve workflow, and track claims using analytics.

In 2022, in the U.K., as per Gallagher reports, motor insurance claims were impacted by delays in automotive parts and increased costs. Commercial vehicles and car parts were impacted significantly due to supply chain issues (further escalated by the Russian-Ukraine War) and problems with semiconductor chips globally. Compared to 2021, labor costs had increased by 6.5 - 7%, and repairs and parts costs had increased by 6 - 9.1% in 2022, which in turn negatively impacted vehicle manufacturers as per Allianz data. Settlement times had increased from seven weeks to a year in 2022. This posed a serious problem for drivers who could not operate without transportation. It was also found that, as a knock-on effect, many used commercial vehicles were being sold at a higher price than fresh new cars in 2022. For commercial properties, insurance claims in 2022 increased by 6 - 10% as a result of material delays and high costs of construction materials.

Under sourcing intelligence, organizations generally fully outsource their insurance requirements. Insurance can play a critical role in mitigating several supply chain risks. Therefore, when selecting an insurance provider, it is important to review and assess policies to address common gaps, discuss the unique risks of the specified business/industry with the advisor, and consider additional/ complementary insurance coverage (if necessary). During the process of purchasing supply chain insurance, a company (or, buyer) should consider discussing certain topics, such as exclusions in the policy, the scope of coverage, the waiting period, the duration of coverage, the financial and geographical limits of the policy, and proof of loss. Some of the other sourcing practices include identifying backup vendors and suppliers, revisiting procurement contracts with the legal team to reduce contractual liabilities and developing contingency plans. 

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Supply Chain Insurance Procurement Intelligence Report Scope

• Supply Chain Insurance Category Growth Rate: CAGR of 4.5% from 2023 to 2030

• Pricing Growth Outlook:  10% - 20% (Annually)

• Pricing Models: Contract-based, dynamic pricing model

• Supplier Selection Scope: Cost and pricing, past engagements, productivity, geographical presence

• Supplier Selection Criteria: Products and services, commercial insurance policies (casualty, marine, engineering and property, professional indemnity, cyber, accident health), credit lines, tools used, operational and functional capabilities, technology used, and others

• Report Coverage: Revenue forecast, supplier ranking, supplier positioning matrix, emerging technology, pricing models, cost structure, competitive landscape, growth factors, trends, engagement, and operating model

Key Companies

• Zurich Insurance Group Ltd.

• American International Group Inc.

• Berkshire Hathaway Inc.

• Munich RE

• Allianz SE

• Marsh LLC

• If P&C Insurance Ltd

• Swiss Re

• Morris & Reynolds Insurance

• Kaercher Insurance