Supply Chain Shortages and the Insurance Industry
December 21, 2021
Supply chain isn’t a topic that sees the headlines a whole lot. That is, unless you’ve been reading the headlines recently.
For something that’s so essential for the functioning of our global economy, the supply chain across all industries has seen quite a few high-profile crises of late (think: the Suez Canal obstruction, the backlog of cargo ships in California, COVID-19-caused factory shortages).
These crises have a tangible impact on consumers. Maybe you love chicken wings, they’re part of your regular dietary repertoire but suddenly, due to supply chain issues, it’s both costly and challenging to get ahold of this finger-lickin’ delicacy. Or, perhaps you’ve been waiting for a bed frame for months. The furniture company you bought it from gave you a delivery date but that delivery date keeps getting pushed back. It’s frustrating.
What’s this got to do with insurance?
Consumers aren’t the only ones impacted by supply chain backlogs.
The businesses that face supply chain disruptions also need to contend with the real financial consequences that accompany those backlogs.
Think about the furniture company that owes you a bed frame. Their delay in getting the bed frame to you might come down to a cargo ship accident. If their cargo ship was flooded and the goods on board were damaged, then the furniture company would need to send you a new bed frame. Without insurance, the company would be completely liable for the loss of goods.
Fortunately, most commercial companies have insurance to mitigate supply chain risk, and as supply-chain disruptions become more commonplace, interest in comprehensive insurance coverage to protect against supply chain risks also increases.
Why are supply chain disruptions becoming more common?
The COVID-19 pandemic highlighted major gaps in our supply chain systems.
In March 2020, when global offices shut down and many employees started working from home, the same could not be said for essential workers, including medical professionals, critical trade workers, and supply chain professionals (across manufacturing, distribution, warehousing, and trucking). It was important for our supply chain systems to continue working, particularly as many of us were quarantined at home. To stay at home, we relied on the supply chain professionals to continue working.
But unsafe working conditions, particularly in the midst of a global pandemic, paired with a labor shortage caused many supply chain professionals to rethink their career paths. So, just as demand for imported and delivered goods increased during quarantine (groceries, puzzles, sourdough bread-making supplies), so too did many industries face a shortage of trucks, drivers, and warehouse workers to process goods.
Backlogs such as this have knock-on impacts: perishable goods perish, rushed and understaffed handling of goods result in damage, overworked truck drivers and cargo ship captains expose themselves to exhaustion – and the risk of human error that follows.
While the COVID-19 pandemic exposed faults in our fragile supply chain system, it’s only one of many reasons why supply chain disruptions are becoming more common. U.S. industries’ supply chains – global as they are – are particularly vulnerable to natural disasters, including global pandemics, rising sea levels, wildfires, and hurricanes. On top of that, supply chains are susceptible to transportation failures, political instability, material price increases, and cyberattacks. Unfortunately, there’s no end in sight for these risks, which means global supply chains will continue to reckon with the challenges that accompany them.
Keeping a finger on the pulse
Don’t panic, though.
Yes, supply chain backlogs will continue to plague companies in the years to come. But that doesn’t mean it’s time to throw in the towel and give up on our global economy. Insurance was built to mitigate risk – in fact, its original use-case was to mitigate supply chain risks in shipping.
As more companies look for specialized insurance to help them mitigate supply chain losses, insurers and reinsurers have an opportunity to grow into new lines of business to meet those needs. This is a win-win situation, as insurers and reinsurers grow their business and companies avoid insurmountable losses from supply chain disruptions.
This also presents an opportunity for insurers to foster resilience. As more insurers encourage insurers to take precautions to avoid claims events, we see that innovators will have a lock on new growth.
The key to pivot
We know what you’re thinking: Growing into new lines of business, particularly specialized lines of business, can cause major headaches. Innovation isn’t easy.
Among the challenges for insurers and reinsurers are licensing obstacles, both in terms of regional licensing variations and getting producers licensed in new lines of business. Tracking and managing these licensing requirements for producers across different states can be expensive and labor-intensive.
Fortunately, we built AgentSync to solve just that problem. By automating producer licensing, we help carriers, agencies, and MGAs/MGUs grow their business by seamlessly expanding into new lines of authority and onboarding the producers they need to support that growth.
Check out our demos to learn more about how AgentSync supports carriers, agencies, and MGAs/MGUs in their growth efforts.