London, 17 October 2008

Financial instability and deteriorating economic conditions in the UK are prompting companies to improve efficiency and drive down operating costs in their supply chains. However, these will increase risk exposures Marsh, the world’s leading insurance broker and risk adviser, warned today.

Jeff Colburn, Leader of the UK Risk Consulting Practice at Marsh, explained: “As companies seek to get best value from their suppliers in these tough economic times they are faced with increased risk of being let down. Firms tend to monitor their biggest suppliers closely. However, it is often their smaller suppliers, more susceptible to disruption, which can pose the greatest threats. The impact of a breakdown in a small but critical part of the supply chain can halt a company’s production process or order fulfilment.

"Volatility in fuel pricing has had a major impact on the production and delivery of goods. Memories of trucker strikes shutting down factories are still fresh in our clients’ minds. We expect that, as the economy moves slows further, these economic impacts will be magnified.”

Marsh is advising companies to assess their supply chains and identify ways to mitigate risk. Options include reviewing their business interruption strategies, supplier network and financial exposures and taking advantage of new insurance solutions that address risks that have not previously been regarded as insurable.

Traditionally, business interruption insurance is triggered by a physical loss. To help companies mitigate the financial consequences of a disruption to their critical supply chain, Marsh is working with insurers to obtain new insurance coverage for previously uninsured exposures. Examples include regulatory action – a particular concern for pharmaceutical and chemical companies, pandemics, political risk, labour disputes and delivery delays.

Katherine Kanaga, Leader of Marsh's Property Practice in Europe, the Middle East and Africa, said: "While the economic benefits of more globalised supply networks are clear, the financial risks from supply chain interruption have become far more acute. Insurance programmes are being developed that approach this kind of business interruption more broadly than has ever been previously available. As companies seek to reduce costs, they also need to manage their risks more proactively.”

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