Tuesday 22nd Aug 2017 - Logistics & Supply Chain

Rising cost of supply chain disruption

Business interruption now accounts for a much higher proportion of the overall loss than was the case ten years ago – and that is down to increasing interdependencies between companies, the global supply chain and lean production processes.

That connection is made by insurance group Allianz in a new report: Global Claims Review 2015: Business Interruption In Focus.

Malory Davies FCILT, Editor.

Malory Davies FCILT, Editor.

“The growth in business interruption claims is fuelled by increasing interdependencies between companies, the global supply chain and lean production processes,” says Chris Fischer Hirs, chief executive officer of Allianz Global Corporate & Specialty.

“Whereas in the past a large fire or explosion may have only affected one or two companies, today, losses increasingly impact a number of companies and can even threaten whole sectors globally. With our experts researching this topic, we are well positioned to respond to this evolving risk.”

The average large business interruption property insurance claim is now some €2.2 million, 36 per cent higher than the corresponding average property damage claim of just over €1.6 million.

The study analyses more than 1,800 large business interruption claims totalling over €3 billion from 68 countries for the period 2010 to 2014. Fire and explosion is the top cause, accounting for 59 per cent of all business interruption claims globally.

It also maps how large claims have followed the shift of manufacturing production to Asia, so too have large claims. There is an increasing concentration of production sites and logistics hubs in certain areas. If such clusters are hit by natural catastrophes, or a fire or explosion (the report highlights recent events at Tianjin port in China) the disruption can quickly become global.

The growth of global supply chains, which enable production to be concentrated in the most efficient locations, has been a major driver in the development of the world economy.

The cost benefits are impossible to ignore, but the supply chain risks must also be taken into account. And as this report makes clear, the costs associated with those risks are rising.

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