Supply Chain Risk Management (SCRM) is a critical component in modern business operations. It protects businesses from operational and financial disruptions that can come with unexpected incidents. However, with the advent of terrorism, it is important to consider how to incorporate terrorism insurance in SCRM to mitigate supply chain risks.
Why Terrorism Insurance is Vital in SCRM
Terrorism is a significant threat to the security of supply chain operations. Terrorist acts, whether political, ideological, or religious, can result in damage to infrastructure, theft, or destruction of goods, and interruption of business processes. These can lead to severe financial losses for businesses, especially those that operate in high-risk areas.
Terrorism insurance can provide businesses with financial protection against losses caused by terrorist acts, qualifying as acts of terrorism according to the provisions set out in the Policy.
Types of Terrorism Insurance
Terrorism insurance comes in two types: standalone terrorism insurance or cover provided as part of broader property insurance. The standalone terrorism insurance policy covers only losses from terrorist acts. In contrast, the property insurance coverage provides coverage for terrorist acts and other incidents leading to property loss.
The choice of terrorism insurance type depends on the level of risk that the business faces. For high-risk businesses, standalone terrorism insurance is often recommended, whereas businesses in low-risk areas can opt for the broader property insurance coverage.
How to Incorporate Terrorism Insurance in SCRM
A comprehensive SCRM plan must include measures to mitigate risks caused by terrorism. These measures should include identifying the potential risks of terrorist incidents, minimizing the potential impact of such risks, and transferring residual risks by purchasing terrorism insurance coverage.
The following are the steps that businesses can take to incorporate terrorism insurance in SCRM:
Step 1: Identify Operational Risks and Risk Tolerance
Businesses must conduct a risk assessment to identify potential risks in their operations. The assessment should identify their supply chain’s critical areas, understand their risk tolerance, and evaluate their risk appetite.
Step 2: Implement Mitigation Strategies
After identifying potential risks, the business should implement strategies to minimize these risks. This may include securing their facilities and supply chain, conducting security audits, and implementing surveillance systems.
Step 3: Transfer Risk with Terrorism Insurance Coverage
The final step in incorporating terrorism insurance in SCRM is purchasing terrorism insurance coverage. The insurance policy must provide cover for all the critical areas of the business. These areas may include property damage, loss of income, liability, and business interruption.
Conclusion
The increasing threat of terrorism requires businesses to incorporate terrorism insurance as part of their SCRM strategy. By implementing an effective terrorism insurance policy, businesses can transfer the financial risks associated with terrorist incidents and protect themselves from damage and losses due to terrorism. In summary, terrorism insurance is becoming a critical component of SCRM, providing businesses with the necessary financial protection to survive terrorist incidents and keep their operations running.