Modern supply chain risk management complexity demonstrates that a natural disaster in one region increasingly carries repercussions for corporations, consumers, and governments located far from the eye of the storm.
Climate risks such as cyclones, floods, or earthquakes disrupt supply chains by closing ports, delaying deliveries, cancelling cargo flights, or tipping the balance between supply and demand.
Descartes’ parametric insurance solutions cover non-damage business interruption in a client’s supply chain.
Customized precisely to the client’s exposure needs, our policies offer swift liquidity when triggered by predefined natural catastrophe or adverse weather events, helping client’s cover logistics and unexpected expenses.
Our parametric solution for supply chain disruptions and contingent business interruptions is structured using a variety of advanced data sources based on the client’s risk exposure and needs.
We develop an index customized to the client selected supplier locations and relevant climate exposures of that region.
With indemnification linked to the severity of the event and no lengthy on-the-ground loss adjustment required, clients have certainty of the swift payout they will receive if the policy triggers.
Client Need: A major vendor of heavy construction equipment imports hundreds of machines per month from an Asia based supplier. These top brand imports are expensive and large in size, requiring a strictly timed delivery schedule to ensure that sufficient product is available to meet market demand.
Pain Point: The client had experienced repeated operational disruption after a series of earthquakes and typhoons stressed the client’s dependence on their Asia based supplier. A recent typhoon resulted in revenue losses of 2M USD, though the client’s exposure could amount to 15M USD in a worst case scenario. The lengthy claims assessment process of traditional products did not meet their liquidity needs and the client had no way to recover losses from missed customers during supply disruption.
Our Solution: Utilizing data on the severity and location of typhoon or earthquake events provided by regional specialized meteorological centers, our team built a parametric cover based on event detection in a pre-agreed perimeter around key suppliers selected by the client. In consultation with the broker, we calibrated the cover using the client’s historical loss data and assigned specific payout ratios based on the event severity and distance from identified supplier factory sites.
The Result: When a typhoon occurred and triggered the policy, the client immediately received cash to trigger their Business Continuity Plan. With zero time spent in lengthy loss adjustment discussions around complex supply chain processes, the client’s Risk Management could focus fully on ensuring business continuity and continued suppliers relationship.