A new report by re/insurance marketplace Lloyd’s, delivered in collaboration with broker WTW, has warned that the global electronics industry is threatened by semiconductor supply chain risks, which are set to be exacerbated by a lack of available insurance solutions.
The semiconductor industry is estimated to have a market value of nearly $600 billion and supports a $2.2 trillion electronics sector that in turn drives almost $90 trillion of global GDP.
But Lloyd’s and WTW note that the sector faces a variety of headwinds, and argue that the re/insurance industry needs to be more aware of the availability and uptake of supply chain risk solutions by clients.
Semiconductors are the chips that enable the electronics industry and are found in vehicles, mobile phones, medical technology and even power the clean energy solutions being used to enable a sustainable future, such as solar and wind farms.
Due to the complex and global nature of the sector, it is subject to a multitude of risks including geopolitical tensions, earthquakes, and extreme weather, with manufacturing plants predominately located in East Asia.
Lloyd’s and WTW report that the sector is most concerned by the medium-term risk landscape, which is where significant scope exists for increased collaboration between the industry and their insurers to address protection gaps.
Of survey respondents in WTW’s Global Supply Chain Survey, 81% said a lack of insurance solutions was among the greatest challenges in the medium term, sending a clear signal to insurers that the industry requires partnership to transfer risk.
Those interviewed also highlighted eight key supply chain risk drivers, namely economic pressures, supply and demand changes, talent and labour, raw materials and components, technology, packaging and transport, regulatory/geopolitical/political risks and climate change and sustainability.
The report notes that these risk drivers matched those of the food and drink industry, which favoured end-to-end supply chain coverage.
In contrast, the semiconductor industry recognised large financial exposures in their supply chains which traditional risk transfer cannot currently meet, and so favoured risk transfer at key moments in their chain.
“By adopting a customer centric view of risk, the semiconductor industry could act as an example of a resilient, digitalised supply chain in a connected world – with data and tailored insurance solutions used to supplement businesses’ retained risk,” the report concluded.
“The semiconductor industry is acting now to respond to global demand and spark technological innovation. While the sector is mature in its approach to risk management, there are always unforeseen events that can impact production,” commented Rebekah Clement, Director of Sustainability at Lloyd’s.
“The insurance industry has a critical role in partnering with semiconductor businesses to help them build resilience to manage the supply of mission critical products and to keep our digitally connected world turning.”
Hugo Wegbrans, Global Head of Broking at WTW, further stated: “Global supply chain complexity continues to increase, whilst transformative technologies powered by semiconductors are driving rapid change and progress in many areas. Like many other businesses, Semiconductor companies are aware of their supply chain vulnerability and are actively working to increase their resilience. For the gaps, they are looking to the insurance industry to partner.
“At the moment, insurances cover only small parts of the supply-chain risks. The solutions provided by our industry provides only a wafer-thin patchwork of protection. Semiconductor businesses need to explore different ways to manage the significant financial exposures to achieve true resilience. Traditional risk transfer will only be one component of achieving that.”
