Securing the Supply Chain in the Era of Earthquakes

Much of the world remains uninsured and underinsured against earthquakes, even in locations known for their high seismic risk.

In the aftermath of the Japanese earthquake and tsunami and the New Zealand earthquake, more and more companies are looking at insurance protection that approaches risk more holistically and more intelligently.

Not only Earthquake insurance, which pays the policyholder in the event of damage to the property caused by earthquake, many companies after closer examination of their global supply chains are investing more in Contingent Business Interruption (CBI) coverage. These policies protect a company against lost profits if there is an interruption of business at the premises of a customer or supplier.

Many companies have maintained a “trust-but-don’t verify” approach to their suppliers risk management protocols while others simply contact each supplier and ask if they have a business continuity plan, BUT rarely get into the details of that plan.

A study by ChainLink Research found that nearly 80 percent of companies do not manage risk beyond their first tier of suppliers. Without a detailed understanding of supply chain contingency plans, companies put themselves at risk. As an example, a key supplier in an earthquake zone may have a contingency plan to shift manufacturing to another facility if disaster hits. The question that needs to be asked is whether the supplier’s IT system has been coded so that shortly after the disaster event, your suppliers distribution system is able to correctly reroute shipments to your alternative locations.

(All credits to Joe Mullich, WSJ)