Unraveling the complex challenges in the cargo insurance market

Untangling the intricate and heavily linked risk environment of today inevitably leads back to the economic disruptions triggered by the covid pandemic. The combination of increased inflation and economic decline has led to a rise in social unrest, as evidenced by no less than seven coups in Africa since 2020, the ongoing crisis in Venezuela, the riots in the USA, and the Houthi rebel group operating around the Red Sea. These factors highlight the supply chain issues that businesses are facing, leading them to critically assess their operations, sourcing of raw materials, and security measures. This is where Zurich steps in to provide guidance, support, and collaborate.

In the past, a key aspect of the underwriting process, besides examining the risk and the protections, security, and risk management strategies, was to review the loss record as a testament of a customer’s proactive approach. Considering the tumultuous events of the past two to three years, there is a question regarding the significance of the historical loss record.

How are companies revising their supply chain strategies?

Many customers are reshaping their models in response to these disruptions, prioritizing reliability. Companies understand the necessity of delivery and sales because they acknowledge that without them, there is no profit. As a result, they are now integrating more redundancy to ensure they maintain their sales. This includes stockpiling excess raw materials, finished products, and maintaining additional warehouses with similar inventory to ensure backup capacity in case of supply chain disruptions.

Through conversations with our customers we have recognized a growing demand for a reliable and cost-effective supply chain, underscored by the relentless pressure to make sales. Clients recognize that insurance payouts cannot compensate for dissatisfied customers or the loss of market share. Moreover, if a loss happens at the start of the supply chain, insurance coverage will only include the value of the goods at that stage, excluding the final sale price of the completed products.

Do clients now have a deeper understanding of their supply chain risks?

Customers are now seeking a broader comprehension of their supply chain, which can conflict with their previous outsourcing of cost optimization rounds to freight forwarders. Among other pressing concerns, clients are trying to comprehend the connections between various locations in their supply chain risk environment and the potential impact of an interruption at one part of the chain on other facilities and locations.

Customers want to gain a more profound understanding of the interconnections between their supply chain sites and require assistance to obtain this insight. Many companies are now using twin model systems to model their supply chain and run various risk scenarios through it. It's worth noting that this process is more about risk management than insurance, except when it comes to filing a claim. Risk management requires expertise, which Zurich can provide due to our experience in the current situation and successful implementations. In general, customers feel they lack a clear understanding of their supply chain and its risks, so they are seeking clarity. After they gain an overview of the risks, customers can develop strategies to manage them.

How is Zurich assisting customers in the current situation?

As customers navigate a complex and multi-dimensional risk environment, Zurich helps them to comprehend their supply chains and the associated risks. This process starts by asking the right questions to logistics managers, which can uncover knowledge gaps within businesses operating in similar industries.

Often, companies have not constructed their supply chains with adequate business continuity in mind. This becomes apparent when examining the importance of different sites and their interconnectedness. Asking the right questions is an effective way to prompt clients to think differently about establishing a secure supply chain. At Zurich, we provide practical assistance by sharing our expertise and offering clients successful strategies implemented by other businesses in their sector or territory.

Our global risk engineers' knowledge and experience empower us to guide customers in asking the right questions and evaluating their performance within their industry. As an insurance company, we encounter all types of industries operating globally. This experience provides us with a vast knowledge base that can be used for the benefit of any of our customers.

What type of information is needed from the customer?

To effectively collaborate with customers in addressing supply chain challenges, Zurich requires high-quality information and data. In the past, customers were often hesitant at the initial contact with the underwriter to provide the detailed data required, either due to limited access to it, or misunderstanding its usage.

Although Zurich uses customer data for risk assessment, pricing decisions, and setting conditions, the true value of this data lies in generating value-added insights for customers. This is key to a more sustainable and healthy marine insurance market and benefits both customers and Zurich by potentially reducing claims.

In conclusion, understanding the nature of Zurich's relationship with customers, including brokers, is crucial. A closer working relationship enhances solutions and risk management for clients.

At Zurich Nordic you have access to a powerful global network of marine experts. We possess the necessary tools to assist you in predicting, preventing, and responding to these risks. For more information about our offering, please contact Sebastian Walldén, Underwriter Marine.