A man moving boxes of supplies
Property Casualty

Supply Chain Issues Can Impact Your Insurance Policy

Nick Kohlhof
Nick Kohlhof
Client Executive, Property Casualty

Remember the start of the pandemic and going to the grocery store only to find the shelves wiped out as if it were a zombie apocalypse? I remember that well. Specifically, I remember paper products, like toilet paper and tissues, becoming scarce. I remember going to four different stores, one after the other, just to find toilet paper. All of those Economics classes came rushing back as we saw first-hand the impact of supply and demand and how it changed people’s behavior.

The cause of raw material and supply shortages stem from many different causes in different parts of the world. A shortage of truckers, power outages in China, and, of course, mother nature all play a part. Everything is connected, and it doesn’t take long for the domino effect to take place.

The ‘Bullwhip’ Effect

One of the most significant issues, however, comes back to the toilet paper reaction. Some call it a “bullwhip” effect.

Consumers, retailers, manufacturers, contractors, etc. are ordering products as fast as they can and buying as much as they can in order to produce and keep their businesses going, often before they need it. Can’t blame them, right?! In fact, 57 percent of companies believe that supply chain management gives them a key competitive advantage. The buying frenzy, however, only makes things more complicated and unpredictable.

Supply Chain Insurance Discussions

In the insurance industry, the supply chain has long been a regular conversation topic with our customers. Lead time for products, inventory on hand, and potential interruptions in the delivery of materials were all considered and played a role in the policy structure and coverage requirements. Those conversations were straight forward and simple. Now, things have changed. Those conversations are still happening, but the answers are no longer simple, and they’re changing constantly.

Many of our customers tell us that there is no shortage of work for them to do or demand for their products. If they can find the materials to work with and the people to do the work, they will be in good shape. Employee shortage and the ‘Great Resignation’, is a whole other beast of a topic I will handle another time.

Anyway, because of this, everyone is gobbling up materials however possible and figuring out where to store them as they go. This also means they’re storing much more inventory at any given time than they have in the past.

Extra Inventory Could Lead to Unintended Insurance Consequences

You may be surprised to hear this, but sometimes folks forget to tell their insurance agent when they make changes to their business. Lately, it has become a big priority for us to discuss overall values and inventory with customers.

In the fast-paced environment of making and placing orders, companies are leasing new warehouse space, increasing inventory onsite, forming new key supplier relationships, and even developing new products for new market segments. All of these things can have a massive impact on your insurance policy and can increase the likelihood of an uncovered claim, if not reported to your carrier.

It’s important to keep your insurance broker in the loop, not only leading up to your renewal, but during the policy period, to help manage expectations and keep your insurance coverage up to date.

While struggling to find toilet paper can certainly be an uncomfortable situation, it pales in comparison to having an uncovered insurance claim.

Thoughts? Questions? I’d love to hear from you. We have experts on hand to talk through these issues and help you understand how your insurance policy may be impacted. Just reach out to us!

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