NEW YORK—The industry is certainly aware of, and gainingknowledge about, supply chains—but products are not necessarilykeeping up with the risks.

“The industry is in a period of flux,” says Warren Meigs, deputyproperty executive for the U.S. and Canada at AIG PropertyCasualty, during Advisen's Property Insights Conference June 11.The exposure is “not well enough understood,” and contract wordingis not uniform.

Gary Love, vice president and staff operations underwritingmanager at FM Global, agrees. During a panel discussion on thetopic of supply chain risk and contingent business interruption,Love says understanding the true risk of second-, third- andfourth-tier suppliers is a “daunting, daunting task,” and hisfeeling is the industry has not stepped up yet toprovide products to cover the types of losses starkly revealedby recent events such as the earthquake and tsunami in Japan,flooding in Thailand, and Superstorm Sandy in the NortheastU.S.

“At the end of the day, underwriters are worried aboutaggregation,” he says. “They want assurance,” which isn't easy,considering the vast interdependencies of companies.

Jill Dalton, partner at consulting firm Dempsey Partners, says aconfluence of factors—namely the economy, outsourcing, and weatherand other types of loss events—have created a perfect storm todrive up risks associated with complex supply chains, as well asthe need for products to cover them. Coverage isavailable, but inconsistent, she says, and limits are low.Losses are difficult to quantify: What happened at a supplier? Whatwas the peril? Was the policy triggered?

The supply chain/CBI solutions in the marketplace are not beingbought by clients, according to Duncan Ellis, managing director andU.S. property practice leader for Marsh. He calls the take-up rate“disastrous”—as in only a handful of contracts have been signed byone leading insurer, for example.

The panelists have several theories. Among the most interestingis one by David Shluger, strategic risk consultant at Zurich, whosays the industry's current role as a strategic risk consultant isworking, and clients are happy with assessments provided, outliningthe risks along the supply chain and advising on matters such aslocations of distributors. But potential clients take the plans onhow to mitigate losses, and put them into action without buying arisk-transfer product.

Dalton adds supply-chain and CBI products are in an evolutionarystate, just as employment practice liability was when it was firstintroduced to the marketplace. No one bought EPLI coverage at thestart, but it is now popular. The future of supply chain products“will get better,” she adds.