Supply Chain Insurance 101

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Supply Chain Insurance 101

Do you rely on one or more third-party suppliers to produce certain components used in your products? If you do, a disaster that interrupts your supplier’s regular business operations could have a devastating effect on your production abilities.  Not only could an interruption harm your own revenue, but it could also negatively affect your customers.

While you should always try to minimize risk through contingency planning and other risk management techniques, as supply chains grow across the globe, sometimes there is little you can do about the exposures faced by your suppliers. Supply Chain Insurance is meant to cover losses you incur as a result of an interruption to your supply chain. Supply Chain Insurance coverage allows you to work confidently with suppliers who face exposures beyond your control.

Supply Chain Insurance
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Supply Chain Insurance Considerations

Supply Chain Insurance Coverage is most important for those who directly rely on the production ability of a key supplier for their own operations. If there are no alternative suppliers available and you cannot build up a substantial reserve of materials, then you are at an increased risk for debilitating interruption and are more likely to benefit from Supply Chain Insurance.

Supply Chain Insurance Covers

In the past, most Supply Chain Insurance policies that covered supply chain interruptions required physical damage to the product or material itself. Recently, however, an increased focus has been put on addressing more diverse causes of loss within the supply chain. Supply Chain Insurance is now available that activates on any number of events that cause an interruption, such as:

•             Natural disasters

•             Pandemics

•             Strikes

•             Political unrest

Supply Chain Insurance is meant to cover financial losses you incur as a result of an interruption to your supply chain. Such coverage allows you to work confidently with suppliers who face exposures beyond your control. Supply Chain Insurance Policies protect your income during supply shortages, covering revenue loss resulting from reduced output along with other associated costs that you may incur as a result of the interruption.

What is supply chain insurance?

There are lots of potential risks and disruptions that are challenging for supply chain organizations. The complex network of vendor, supplier, and customer relationships means that a disruption to one link in the supply chain can cause significant losses in many other parts of the chain. With increased demand for accurate and on-time delivery, higher costs, and increased globalization, the need for risk mitigation can help modern supply chains become more resilient to disruptions.

Supply chain insurance covers financial losses arising from potential operational risks of your supply chain. It protects the organization against disruptions and business interruption losses throughout the facilitation of the flow of products from production to sales.

Most commercial insurance policies are triggered by physical damage, such as a warehouse fire or cargo damage. With supply chain insurance, your supply chain stays protected in the event of delays, natural disasters, transportation failures, production disruptions, strikes, and other external events that create a loss for your business.

What is covered by business interruption insurance?

Business interruption insurance is a type of commercial property insurance product. It protects your business against lost income arising from the direct loss, damage, or destruction of your insured property because of an insured peril. Business interruption insurance also covers relocation costs, employee wages, rent and lease payments, taxes, and loan payments.

For example, if a fire damages most of your manufacturing plant and you cannot produce anything during renovations, business interruption insurance covers income that your business loses while it isn’t operating.

Even if there are no building fires, there are potentially other unexpected events that could impact your business’s ability to generate income. For example, disruptions to one of your key suppliers can also interrupt your business. Contingent business interruption insurance can protect your business in these situations as well.

How much does business interruption insurance cost?

The cost of business interruption insurance primarily depends on how much revenue your business generates. Other factors might include how many employees you have and your business location. Business interruption insurance policies are typically included in commercial property insurance policies.

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