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Coverage may apply to loss realized from both downstream suppliers and upstream customers. Referencing the crisis in Japan as an example, a supplier would want protection for multiple direct and indirect loss scenarios, such as: Your customer (upstream supplier or OEM) is impacted due to direct damage Your supplier is impacted due to direct damage Your customer is impacted due to direct damage at a peer supplier Your supplier is impacted due to direct damage at a lower tier supplier
It is important to note that coverage may not be automatically included in property insurance policy as contingent coverages need to be tailored to address your exposures.
*Actual Loss Sustained typically recognizes make up capacity and offsetting demand surge.
manufacturers who are in multi-tiered supply chains, where any interruption in the chain could cause an interruption at all related customers/suppliers. Some CBI clauses even restrict coverage to specific suppliers (named). CBI clauses can often be broadened to include indirect customers and suppliers (often at a reduced limit). This extends coverage to customers of customers and suppliers of suppliers providing a much broader approach to insuring the supply chain. Unnamed customers and suppliers also offer some broadening of coverage but may not provide the breadth of coverage desired. For example, if a loss were to occur at a supplier to your customer resulting in an interruption of your operations, this could also be covered by a CBI clause that includes Indirect coverage. What about a manufacturing shut-down caused by lack of power supply? Most property insurance policies provide a coverage called Service Interruption (Utility Interruption). Service Interruption (SI) provides coverage for an interruption of business operations (loss of sales) resulting from a disruption of incoming services (electric, gas, water, etc.), due to an insurable event. Because coverage must be triggered by an insurable event, coverage determination for production shut-downs attributed to rolling blackouts will be carefully evaluated to determine the source cause of the power interruption direct damage to the power source or rationing of available power. Nuclear exclusions may have a direct impact on these losses. Interruption by Civil Authority, Ingress/Egress, Impounded Water, and Waterway Access are other common coverages. Each of these would require a similar evaluation of policy language as mentioned above to determine whether coverage would apply. It is important to note that many insurance policies have coverage restrictions under Contingent BI for Service Interruption. This may further complicate any potential recovery for a Contingent BI loss. Lastly, how could the concurrent nuclear crisis in Japan affect coverage? All policies have exclusions that could affect CBI or other coverage extensions. For example, most property policies have a nuclear exclusion. This exclusion typically nullifies coverage regardless of any other cause or event, contributing concurrently or in any other sequence to the loss. This exclusion is expected to complicate the determination of coverage for losses that involve locations that were in the nuclear evacuation area or experienced production shut-down contributed to by an interruption of power. The complex situation in Japan highlights the need to discuss your supply chain exposures with a qualified risk advisor or insurance broker who can help develop coverage terms and conditions and a mitigation plan designed to address your organizations needs.
Aon Contact:
Mike Stankard Managing Director Automotive Industry Practice 248-936-5353 mike.stankard@aon.com Bill Novak Director Aon Brokerage Group 248-936-5257 bill.novak@aon.com Aon Risk Solutions 3000 Town Center, Suite 3000 Southfield, MI 48075 aon.com