A Third of Large U.S. Firms Show Business Interruption From Japan Disaster

By | April 29, 2011

More than a quarter of large U.S. based businesses are experiencing disruptions to their supply chains or contingent business interruptions as a result of the March earthquake in Japan, says a new report.

A new Greenwich Market Pulse study says the vast majority of large U.S. companies experiencing problems have insurance coverage to cover such interruptions of normal operations and income; however these interruptions still pose significant risk.

Thirty-six percent of U.S. companies participating in the survey overall and 45 percent of companies with more than $5 billion in annual sales experienced contingent business interruptions associated with the disaster.

Twenty-six percent of the companies overall and approximately one-third of the largest companies experienced disruptions to their inbound supply chains.

Twenty-four percent of participants overall and 31 percent of companies with more than $5 billion in annual sales reported disruptions to their outbound supply chains, meaning that shipments into their customers’ supply chain had been interrupted.

“Roughly a quarter of all the companies participating in the study and almost 40 percent of the largest companies experienced business interruptions or extra expenses directly related to operations in Japan,” says Greenwich Associates David Fox.

Companies participating in the study cite Marsh & McLennan and Aon Corp. as being especially effective in providing advice and support relating to the ongoing challenges posed by the situation in Japan. Fifty-three percent of clients of each of these two brokers rate the firms as “effective” or “highly effective” in assisting their companies in dealing with the earthquake and its aftermath.

“This is the moment for insurance brokers to deliver real value to their clients — and it seems that globally equipped firms like Marsh stand above the rest in doing exactly that,” says David Fox. Companies say they also derive significant value from broker projections about the short-, medium-, and long-term implications of the event, and the ability to access multiple experts from the brokerage firm for advice on coverage, risk and claims.

Companies say that the most effective brokers also provide two additional types of assistance: 1) specific counsel on how to handle the company’s unique situation, and 2) on-site assistance in Japan.

Although a large portion of companies participating in the study maintain insurance coverage protecting them against many specific exposures arising from natural disasters, a meaningful share of these companies say they do not have coverage against disruptions to their inbound supply chains. Almost 30 percent of these companies lack such coverage.

The study results show gaps in specific coverage areas that could prove problematic for companies with exposures to both the earthquake itself and to the resulting nuclear crisis.

Three-quarters of the companies lack coverage providing protection in the event that they cannot access records, documents and reports needed to assess the extent of claims — a common problem for companies with operations in hard-hit areas. In addition, 70 percent of the companies have no specific coverage protection against issues related to nuclear contamination. Finally, half the companies participating in the study do not have coverage that would protect them from costs and disruptions related to human capital issues, including the need to relocate employees and their families.

Source: Greenwich Associates

Topics Insurtech

About Andrea Wells

Andrea Wells is a veteran insurance editor and Editor-in-Chief of Insurance Journal Magazine. More from Andrea Wells

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