Interconnected supply chains lead to rise in "business interruption" property claims, report says

The proliferation of lean, global, and interconnected supply chains has led to an increase in property-damage claims filed as a result of so-called business interruptions (BI), according to a report released yesterday by the business and industrial risk unit of German insurance giant Allianz SE.

The report from Allianz Global Corporate & Specialty, which reviewed more than 1,800 large BI claims from 68 countries between 2010 and 2014, found that the typical BI-related claim exceeded $2.4 million, 36 percent higher than the average property-damage claim of more than $1.7 million. BI now accounts for a higher proportion of overall property loss than it did 10 years ago, the report said, without providing data in its statement. The BI claims in aggregate totaled $3.2 billion over the survey period, according to the report.

"This growth in BI claims is fueled by increasing interdependencies between companies, the global supply chain, and lean production processes," said Chris Fischer Hirs, CEO of AGCS. "Whereas in the past a large fire or explosion may have only affected one or two companies, today losses increasingly impact a number of companies and can even threaten whole sectors globally."

According to the report, 88 percent of BI claims originated from technical or human factors. The top 10 causes of BI loss—the top three being fire and explosion, storms, and machinery breakdown—accounted for more than 90 percent of the value of such claims by value.

The effects of interconnectivity and interdependencies are of growing concern, and play an important role in many risks now appearing on the horizon, such as climate change, cyber attacks, pandemics, and power outages, the report said

"BI exposures are largest for sectors with high levels of interconnectivity and technological values as well as concentrations of risks in single locations, such as automotive, semiconductors, and power and petrochemical plants," said Alexander Mack, the unit's chief claims officer. "While modern supply chains may be flexible and cost-efficient, they are also more vulnerable to disruption."