Supply Chain Disruption, Insurance, and Risk Management

An article in the New York Times Saturday drew attention to the ongoing supply chain issues in the wake of last year’s flooding in Thailand.

In the Nava Nakom industrial zone located just north of Bangkok, only 15 percent of 227 factories operating in the zone have restarted production of electronics and computer parts, according to the NYT.

In particular, the production of hard drives has been impacted disrupting supply around the world. What this means is that consumers may face increased prices for hard drives for the next several months, the NYT reports.

Understandably future flood prevention in the country is a major concern among foreign investors.

Natural catastrophes in 2011, including the Japanese earthquake and tsunami, as well as  the flooding in Thailand, exposed the complexity and vulnerability of global supply chains like never before.

CEOs at the recent Property/Casualty Joint Industry Forum addressed the issues of whether global corporations were adequately protected against supply chain disruption.

Shivan S. Subramaniam, chairman & CEO, FM Global noted that there is no way an insurance company can meet the needs of its clients for all their supply chain issues because people have suppliers who have suppliers, who have suppliers:

It keeps on going and it doesn’t stop. This is one of the key things that we’ve learned through all of this and insurance is only part of the solution. Commercial clients are going to have to spend more time on risk management.†

He added:

Supply chain losses are starting to behave like casualty losses. They have a long tail. I suspect for another 18 months we’re going to continue to hear about losses coming out of Japan.†

Separately, Best’s News Service reports that Thailand’s Office of Insurance Commission is looking to set up a $1.6 billion catastrophe fund that would provide insurance coverage for floods, windstorms and earthquakes to households, small and medium enterprise and industrial factories.

More on this  development via InsuranceNewsNet.

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