Supply chain risk coverage: The end of the unnamed supplier

The Covid lockdowns of 2020, the week-long Suez Canal obstruction in 2021, and the Russian invasion of Ukraine in 2022 highlighted the vulnerability of global supply chains. In response, many politicians and media outlets in the Western world have called for investments in additional manufacturing capacities closer to home. However, this approach doesn’t address the heart of the problem, argues Olaf Köpper, Senior Risk Analyst and supply chain expert at HDI Risk Consulting. The most important factor determining the robustness of a company’s supply chains isn’t usually geography – it’s complexity. As products, production processes, and supplier networks grow increasingly intricate across all industries, the risks spiral upwards and become more difficult to spot.
“A manufacturing plant in Europe can burn down just as quickly as in Asia,” says Köpper, who spent a decade managing global supply chains for a company with 3,500 employees before joining HDI Risk Consulting in 2015. He points out that regions like the EU and North America have faced severe economic losses from extreme weather events, such as floods in Germany’s Ahr Valley and hurricanes like Katrina and Helene in the US. With climate change driving an increase in the frequency of such events, the risks are only intensifying. Meanwhile, growing global populations and rising demand for land have led to urbanisation in high-risk areas that previous generations wisely avoided.
Köpper adds that, in some cases, an issue with a supplier in East Asia might be less disruptive for a European company than one at a supplier’s plant next door. The longer supply chain may hold a buffer of available parts in transit, helping to bridge the time and adjust.
CBI claims continue to trend upward
From an insurance perspective, Köpper says, many companies should focus on a different priority when trying to mitigate their supply chain risks. Corporate insurers have observed a significant increase in losses from contingent business interruption (CBI) claims. These occur when a company is forced to halt operations due to a critical supplier being affected by events such as fires, floods, or other disasters causing property damage. “This increase in CBI losses is driven by the growing complexity of products and supply chains,” Köpper explains.“ This trend persists regardless of the supplier's location.”
Dramatic shortages become more likely as the number of unique parts in a product increases. A modern car’s headlights, for example, contain many more components than their older versions did 30 years ago, with many of these parts now custom-designed for a specific model. This complexity forces manufacturers to manage the availability of a greater variety of components, often relying on just a few suppliers capable of producing them at a viable cost.
While risk managers are aware of this challenge, they often accept the risks due to practical constraints, Köpper says. In industries like aerospace, the number of required components is immense, yet the quantities needed for each part are relatively small. Splitting the production of a high-tech airplane component across multiple manufacturers would often lead to higher costs, making such risk mitigation strategies economically unfeasible.
Automation makes it difficult to rebuild quickly
The accelerating adoption of automation technologies is another factor driving the rise in contingent business interruption (CBI) risks. Following a fire or a similar event, replacing highly digitised and customised production lines takes significantly longer than restoring a small workshop where most processes are performed manually. For instance, in the 1970s, a kitchen cabinet maker needed only sawing and drilling machines, a dust collection system, a suitable building, and some workers. Today, much of the workflow is automated, relying on CNC technology, conveyor belts, and other advanced systems that cannot be replaced overnight. “It takes two years to build a modern kitchen manufacturing facility,” Köpper says. “In the meantime, maintaining operations in emergency mode is nearly impossible, as the few remaining workers can only handle a small fraction of the required workload manually.”
Advances in artificial intelligence and robotics will further accelerate the trend towards increasingly complex and automated processes. In this environment, the insurance sector expects CBI losses to keep rising – and this trend will affect the coverage being offered.
CBI policies always include limits on the damages they will cover, even if the actual losses are higher. Insurers also place sub-limits on the coverage for issues caused by each individual supplier. To determine these sub-limits, the suppliers must be known, but that isn’t always the case in a fluctuating pool of hundreds of vendors. Therefore, insurance policies currently also include a separate cap for unnamed suppliers.
However, to a corporate insurer, these unnamed suppliers represent “blind spots” – their risks are entirely unknown. As CBI losses rise and costs threaten to spiral, corporate insurers are becoming increasingly uneasy about covering vendors that may, for example, lack acceptable fire protection. “From our point of view at HDI Global, it could become increasingly difficult to secure high coverage limits for unnamed suppliers in the future,” Köpper predicts.
The most critical suppliers aren’t always obvious
This change doesn't have to be bad news for companies looking to reduce supply chain risks. “A typical medium-sized company with €200 million in revenues may have about 400 suppliers,” Köpper explains. “In our experience, fewer than ten of those are really difficult to replace and would have a severe impact on the company’s business if they failed to deliver.” Identifying these suppliers is key, he says, and the most effective way to achieve that is a CBI analysis. This method combines value stream mapping with a business impact analysis (BIA) to pinpoint vulnerabilities.
“The business impact analysis separates the wheat from the chaff,” Köpper emphasises. “And it often leads to surprising results.” He frequently assists clients with these analyses and has developed a keen intuition for detecting crucial supplier relationships. “Even with my experience, I’m often surprised by which suppliers turn out to be critical,” he says. It’s not always the high-cost, high-profile parts that matter. Sometimes, a small screw used in every product can cause significant disruptions if it’s missing.
He emphasises that almost every purchasing department has a risk management system, often with a comprehensive approach that includes factors such as a vendor’s financial stability, delivery reliability, and ESG criteria. While these systems are valuable, Köpper points out that even the most sophisticated ones often overlook the business impact analysis, despite its huge benefits. “With our specific focus on CBI risks, suppliers that were rated green by the risk management system can suddenly turn red,” he says. “And sometimes, yellow ones turn green because we discover that they wouldn’t be difficult to replace.”
Online solutions cannot provide valid results
Köpper strongly advises against using today’s online services that promise to generate CBI analyses using artificial intelligence and publicly available information. The problem with this approach, he explains, is that not all of the relevant information is available online. To provide meaningful insights, the analysis must have access to details about specific parts, their uses, quantities, and other factors. This information cannot be obtained purely from publicly available databases. “Often, you need to consult with an engineer and a procurement manager to truly understand the importance of an item and the interdependencies.”
Once a part’s importance has been determined, another essential step is to calculate the potential losses that could occur if it can’t be procured. HDI Risk Consulting is particularly well-equipped to assist with this task.

In the end, having a clear understanding of the most damaging risks – not just the most likely ones – will benefit both the insurer and the insured. The eventual demise of the “unnamed supplier” need not be mourned.