How to combat supply chain shortages

Many industries are struggling to source both materials and labour due to Brexit and the long-term impact of Covid. For businesses, this uncertainty around when materials will arrive, and the potential delays that can arise following this, is having a real impact. Supply chain interruptions are difficult to manage at the best of times, but do you know the impact these current difficulties could have on your insurance and whether you should be concerned?

Your property insurance cover

Whilst some businesses may not feel the direct impact of the rising costs of building materials on a day-to-day basis, what would happen in the event of a claim? The cost of rebuilding your premises might have been adequate at renewal six months ago, but due to some significant inflation on some building materials, it may well be more expensive to source these materials now. With this in mind, would your sum insured still be sufficient to cover the cost of reinstatement? If not, you are likely to be underinsured.

Stock levels

Have you decided to increase your stock levels to allow you to cope with added seasonal demand? Some insurance policies might automatically provide for seasonal stock increases, for example in the month running up to Christmas. However, is that enough cover and is that long enough?

Adequacy of your Business Interruption cover

There is also a direct impact on your Business Interruption insurance cover, particularly your indemnity period. Supply chain interruptions not only mean materials are taking longer to source, but how readily available are the contractors you need to do the work?

Contractors are in short supply; there is a shortage of skilled workers and it’s becoming increasingly more difficult to find contractors to undertake repairs quickly. Post-Brexit restrictions in the freedom of movement of people have left some sectors desperately short of specialist workers.

Remember, your indemnity period should represent the time it would take to return your business to the position it would have been in had the loss never occurred. These issues are inevitably likely to have an impact on the time it will take to get back to that position, so is your indemnity period sufficient? We know that 12 months is never enough, and with a significant loss, a 24-month indemnity period is rarely sufficient and can leave your business in a vulnerable position.

These post-Covid challenges are likely to be with us for some time, so it’s vitally important for businesses to reassess their sums insured to ensure they remain correctly insured.

A recent study by leading UK insurer Aviva found that 1 in 4 SME businesses have not materially altered their sums insured in the last 4 years[1] and around 40% of Aviva’s customers do not have an adequate indemnity period[2].

What else can companies do to minimise the impact? 

• Plan ahead – A robust and fully tested Business Continuity or Disaster Recovery plan is essential. You should take the time to review this regularly and ensure that any impacts of shortages are taken into account.
• Talk to your suppliers – See if you can secure additional supplies of essential stock and look for alternative suppliers.
• Manage expectations – Ensure your customers know how you are dealing with any shortages. Make changes where you can.
• Talk to an insurance advisor – At Aston Lark, we have the experience to guide you through this and make sure your insurance policy does what you need it to, which is one less thing for your business to worry about.

You can contact us either by phone on 020 7543 2800, email us at [email protected] or request a call-back on our website here.

[1] Based on Aviva-held SME business excluding Fleet – Modelling 80% of the account and extrapolating the total, correct as of November 2021

[2]  Research from Aviva’s Risk Insight Report 2021. Aviva commissioned YouGov to conduct research amongst UK business leaders