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The Big Question: Is the global supply chain the biggest risk at present?
Fears for the strength of the global supply chain have increased in recent weeks with the CEO of the world’s biggest shipping company warning that maritime trade is reaching breaking point with potentially worse to come.
Maersk CEO Vincent Clerc in a message to his clients warned that the issues with access to the Suez canal, and with climate driven low water levels in the Panama Canal have forced vessels to make longer and more perilous journeys. The staggered timetables have also had a knock-on effect on the world’s ports which are seeing increased congestion as vessels arrive and are forced to wait for an available berth in order to unload and reload with cargo. The return journey can be almost two weeks longer than when the two major canals were fully operational. He added there is now little or no excess shipping capacity to ease the burden on the world’s fleet and that the looming Asian cyclone season has the potential to cause further disruption.
It is therefore understandable that many businesses have been working to redraw their supply chains in an effort to shorten distances and ensure more timely deliveries. But is the supply chain the biggest concern for businesses and many risk managers?
Ian Summers, Global Business Development Leader, AdvantageGo.
Beth Thurston CEO risk management UK at Marsh says while supply chain issues are a major risk for clients there are others which are worthy of attention.
“The challenges facing risk managers have become more complex and while there is an ever widening number of risks there are three at present which are deemed to be the main causes for concern,” she explains. “The first is around cyber and artificial intelligence (AI) risks, the second is around the total cost of risk, and the third is the ongoing concerns around the supply chain.”
The cost of cover remains an issue and Thurston says there is a desire from clients for a degree of consistency rather than the volatility that is all too often part of the insurance pricing cycle.
“There are a number of factors, the macro-economic environment, inflation and high interests rates which have impacted balance sheets at a time when the insurance market has been in the hard part of the pricing cycle and the effects of the Covid pandemic are still being felt.
“It has resulted in businesses having to navigate a challenging environment when it comes to cost management. There is a question over how to balance cover against cost of risk transfer and on what basis should that risk transfer be conducted.
“Thankfully we are seeing premiums starting to reduce for the first time in three years but it differs among classes. Property rates are reducing by around 2% with cyber cover reducing by around 7%.”
On volatility the risk managers are keen for more consistency to enable them to better deliver their message to the boardroom.
“Risk managers want to be able to better articulate to stakeholders on the risks and the steps they are talking to manage those risks. They are not keen to see rate rise significantly one year and then return the following year to report that there have been significant falls in the cost of cover.”
Supply chain risks however are proving to be a major headache to businesses of all shapes and sizes.
Similarly, supply chain issues remain a major concern and are part of almost every conversation.
“Again there is an issue as to how risk managers can explain the current complexities to the stakeholders. To do so means risk managers have to fully understand these risks. They need to have in place systems which allow them to analyse these risks in detail, to understand the challenges they pose currently and identify future trends.
“There are tools that can support risk managers in their efforts to identify these challenges but to manage risks we need to fully understand them.”
Thurston continues, “The concerns are often around geopolitical risks with Ukraine, the Middle East and the broader global environmental, humanitarian and industrial challenges. Clients are seeking to understand what major disruption would look like.
“Risk managers are approaching this from the point of view of how they can manage their exposures, but to do so they need to understand them.
“They need to be confident that they understand the end to end supply chain, where the potential challenges are and their nature.
“Risk managers must look at whether there is an over reliance on a single supplier or a single region for a key component of their business and its success. Risks can include goods passing through territories which are subject to sanctions or products being made in nations that have a poor record for workers’ rights.
“Risk mangers’ understanding also needs to go beyond the first tier of the supply chain.”
Technology is never far away from businesses and risk managers’ minds.
“The sheer speed of change when it comes to technology is concerning risk managers, both its use within the business, and the broader impmacts. Businesses can see the benefits of what AI can deliver but it comes with challenges and it is how those challenges can be managed in what is a fast paced environment. Areas such as data privacy, and the management of internal processes are becoming significant concerns as are the questions as to the risks that can or should be transferred.
“From the cyber perspective there are ongoing conversations with risk managers and clients, both those who have already insured the risks and those who have not, around whether they understand the risks to their business and whether they adequately transferred those risks off the balance sheet.”
She adds that risk managers are faced with answering questions around cyber threats including employee training and management, contingency plans and how long the business can survive without access to its technology systems.
“It has left risk managers questioning whether they are buying the right cover and the right limits,” Thurston adds. “It has made people think around the impact given the increasing dependence on technology.”