Insuring Supply Chain Risk: The Art of Business Interruption Insurance

Insuring Supply Chain Risk: The Art of Business Interruption Insurance

Learn why business interruption insurance is essential to supply chain management when scaling a successful global company.
Alfred Bergbauer
Alfred Bergbauer, Head of Captives, Multinational, Programs and TPA Services, The Hartford
Whether it’s a natural disaster, a transportation issue or supplier failure, it’s crucial for businesses to have a robust plan to protect against unexpected circumstances that could lead to business disruptions and create financial risk.
There are a variety of steps a business can take to help safeguard revenue and plan for continuous operations in the face of disruption.
“For savvy players, it’s critically important to understand and map out your supply chain – from components to raw materials – for each stage of operation and to understand suppliers and dependencies,” says Alfred Bergbauer, Head of Captives, Multinational, Programs and TPA Services at The Hartford.
Although global expansion can create substantial economic opportunity, it’s not without its risks. Companies that operate globally must have backup plans and inventory in case there is an interruption.
“Knowing your operation, processes and having a contingency plan are absolutely critical,” Bergbauer says. “All too often companies have a piecemeal perspective of their risk, as opposed to understanding the complex interplay between the operations and the balance sheet.”

Protect Against Supply Chain Instability

El documento global supply chain continues to face instability, which places additional risk on businesses operating on an international scale.
“During COVID we saw the vulnerabilities of ‘just-in-time’ manufacturing come to light in a really dramatic way. It highlighted our dependence on reliable yet inexpensive air, land, sea, and freight shipping,” Bergbauer says. “Long supply chains that require the movement of materials and components across the globe leave companies vulnerable, especially because trade restrictions can fluctuate.”
Bergbauer points to Russia’s invasion of Ukraine as an example. At first, European auto manufacturers virtually shut down because many of the wire harnessing systems for European-manufactured cars were made in Ukraine. “As a single good it’s not a high value-added product, but without access to wire harnessing systems, many European manufacturing plants came to a halt,” he says.
As a result, companies today are tasked with shortening extended supply chains to reduce vulnerabilities. A way to do that is to find clusters of countries where low-cost manufacturing can happen within a tighter radius.
“The process is a bit challenging because as this shift is happening, countries are scrambling to bring ecosystems together,” Bergbauer says. He points to growing demand in Vietnam, Indonesia, the Philippines, Cambodia, Mexico and Canada.

Create Multinational Resilience

“Dwight D Eisenhower said it best: Plans are worthless, but planning is everything,” Bergbauer says. “For a company with a multi-country supply chain, it’s the rigor of understanding your processes and dependencies, and having backup plans along the way that could help reduce risk.”
Here are key considerations to defend against business interruption:
Political risks: No one could have predicted many of the world events that have happened in the last 24 months. Performing desktop exercises for worst-case scenarios is a prudent part of an operator's playbook, Bergbauer says. If you’re considering expanding into a politically turbulent region, research the business approaches, dealings, opportunities and challenges of companies already there.
Cyber risks: “No company is bulletproof and able to always protect itself from bad actors,” Bergbauer says. However, companies can and should work with internal IT teams and third-party resources to “have a contingency plan in place for the inevitable hack that hits you and shuts you down.” Given the continued risk of cyber threats, the protocol around cyber protection should be explicit and in the hands of people who are collecting information and manipulating data for the company.
Regulatory risks: A global operator needs to follow the laws of every country it operates in – a formidable task for any organization, which is why Bergbauer says three parties are required to put together an effective multinational insurance program: an experienced broker, a trusted advisor and a global insurer. He points to The Hartford’s Global Insurer Network, which allows it to issue policies in 220 countries. “We work with our partners around the world to operate appropriately within their legal, regulatory and tax regimes, ensuring that we're fully compliant with local laws around the world,” Bergbauer says.
Financial and tax risks: For operators to understand their financial risk, they must know the values of their properties, including buildings as well as replacement costs. Global businesses operating in different countries must also map out country-specific tax requirements and environmental regulations. “Understanding the rules, the norms and the practices in an individual country is critical,” advises Bergbauer.

Ensure There Is Adequate Coverage

“Companies go through extraordinary efforts to expand globally. Yet all too often they fall short on insurance,” Bergbauer says. “They turn to a broker and say, ‘Give me some of that insurance stuff.’ The same rigor with which you built your business needs to be applied to understanding your insurance program, and how it interplays across various countries and geographies.”
To that end, be wary of buying insurance in individual countries. Global operations need an insurer who can take a comprehensive view of your business. A carrier must be able to offer a program structure that adequately addresses and responds to the active dynamic of your operations and the people and products in motion around the world. “Be certain that your insurance program can respond to a loss in the country where it occurs, and also in any other country that then experiences a negative financial impact because of that loss occurrence,” Bergbauer says.
To do this, underwriters need to see a detailed plan that breaks down all the activities of each operation, from sourcing to packaging and distribution. This level of detail allows the insurer to perform an accurate forensic review of the operations and determine the potential extent of the loss as well as the payments that are necessary at each step of the process to make the company operational as quickly as possible following a loss event.
“So much time and focus are spent on the price, as opposed to the terms and conditions and the construct of an insurance program,” Bergbauer says. “I think we've got it all wrong. Companies focus on the price at the front end instead of on the product. Insurance is not a commodity. It’s a complex instrument to protect individuals and companies.”
La información proporcionada en estos materiales brinda información general y de asesoría. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of March 2024.
Links from this site to an external site, unaffiliated with The Hartford, may be provided for users' convenience only. The Hartford no controla o revisa estos sitios. La provisiòn de cualquiera de estos enlaces no implica la aprobación o asociación de The Hartford con dichos sitios. The Hartford no es responsable y no ejerce ningún tipo de representación o garantía relacionadas con los contenidos, integridad, precisión o seguridad de cualquier material publicado en dichos sitios. Si usted decide ingresar a sitios que no pertenezcan a The Hartford, lo hace bajo su propia responsabilidad.
Foreign local policies are underwritten by locally licensed third-party foreign insurers within The Hartford Global Insurer Network but are not related with The Hartford by ownership. Exporters and CMP policies are underwritten by Hartford Fire Insurance Company in the U.S. and issued to the U.S.-based insured, covering its financial interest relating to its exposures located outside of the U.S. Generally, claims under foreign local policies will be adjusted and paid locally by the local insurer with The Hartford providing oversight and serving as the U.S. insured’s point of contact in the U.S. Claims under the Exporters and CMP policies will generally be handled in the U.S. and paid to the U.S. insured in accordance with the terms and conditions of the policies. The Hartford may contract with third-party risk consultants to perform risk engineering services outside of the U.S.
Not all coverages are offered in all jurisdictions and no coverage may be provided in some jurisdictions where restricted by law. All policies should be read carefully to identify all exclusions, limitations, and other terms and conditions. In the event of a conflict between any policy and this document, the terms and conditions of the policy shall control.
The Hartford Financial Services Group, Inc., (NYSE: HIG) operates through its subsidiaries, including the underwriting company Hartford Fire insurance Company, under the brand name, The Hartford,® and is headquartered in Hartford, CT. For additional details, please read The Hartford’s legal notice at
The Hartford Staff
The Hartford Staff
Our editorial team spans writers, researchers, product specialists and subject matter experts. We cover the intersection where best practices and business insights meet.