Question

Read The Question & Answer. Do You Agree With The Answer? Why Or Why Not. Explain.

Question: How does insurance facilitate global supply chain?

Answer: To sustain an efficient global supply chain line, where your raw material and components are available on time, insurance on those goods must be applied. All too often, a firm finds it is improperly insured only after a loss, (David, pg. 326 (2017)). Loss can come unexpected and, in my experience, many times the importer of record or consignee are not aware of the possible perils that may occur when shipments are in transit. Insurance can facilitate global supply chains, by choosing the right policies with the coverage that may be required. Supply Chain insurance, along with the risk management and loss control services provided by insurers that write this type of coverage can help reduce costs, improve cash flow and solidify your value chain (Supply Chain Insurance, 2017).

Global supply chain can be viewed with many risks, simply because anything can happen on an air flight and more commonly on ocean voyages via vessels. Having an adequate Airfreight insurance policy or Marine Insurance is extremely vital to facilitating global supply chain. Fortunately, airfreight policies are less complicated than ocean marine cargo insurance policies, (David, pg. 365 (2017)). Simply because, airfreight in general is an expedited way of shipping cargo, whereas ocean freight sits on vessels for weeks on end encountering many possibly perils. While insurance is an important risk management tool for companies with complex supply chains, taking out insurance should not be seen as stand-alone solution. Insurance will address part of the risk, but practical risk management is also required from each company to prevent or at least reduce that risk (The Ripple Effect of Global Supply Chain Risk Management, 2014). Risk will always be a factor to Global supply chain, and not all risks can be mitigated but they can be insured. And although a shipper/ importer may encounter a year of not having to claim any damages, it is never safe to assume the next year will be the same. Working in this industry I know anything can happen at any time and when you least expect it the most.

Answer 1

Yes i completely agree with the answer and the explanation given to it.

Because insurance becomes important as the future is unforseen and insurance ensures short term liquidity to the insured to mitigate the financial impact if any mishappening occurs , so transferring risk to an insurer is a helpful and meaningful tool for managing supply chain interruptions.

The global supply chains are increasing the seriousness and frequency of business interruption claims Which is leading to rise in millions of dollars and many claims per year.

The increased interdependency between companies as well as lean production processes have increased new risks to businesses and rise in business interruption claims which makes insurance necessary.some of the main causes of loss are - adverse weather, transport network disruption, earthquakes and any natural calamities.