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TAPA EMEA ADVISORY BOARD
The level of deductible is a significant defining factor in the way some companies think. “In Europe, the levels of deductibles can be relatively low, like €1,000, whereas in the US, most companies have a higher own deductible so whatever they lose, it is their money. You see it also in the Final Mile delivery where there is more of a company’s own interest involved. Beside the own deductible impact, people tend to put more emphasis on the Final Mile because of the customer impact when not delivering as agreed.”
Björn says he regularly sees companies adding their own addendums to TAPA’s FSR and TSR requirements, based on levels of risk, to create their own company security policies.
“Then, of course, there is the real cost of loss – all the costs you weren’t fully aware of in relation to what it takes to fix the problem, and how many products you need to sell to make up for the loss. First of all, companies have their own deductible, the money you pay for each risk, that’s not covered. Their transport insurance programme only covers the insured shipment value but not the additional costs that can add up to 5-10 times more.
“Insurance companies learn as well. Over the last few years, they have been adding features into policies to make sure that supply chain risks are identified and managed properly by using supply chain security programmes. When, despite the implementation of mutually agreed requirements, there is a loss the claims process is generally easier. But insurers are becoming tougher because they realise there is a bigger gap between what is written and the risk profile that some customers have.
“The biggest misconception for some companies is that as soon as they have invested money in their security set-up, they will immediately get a reduction in insurance payments, but it doesn’t quite work like that. You have to show that it works and, if it does, you might get a reduction in premiums. However, the fact remains that if you have a loss then you still need insurance, so there will always be a premium to pay.”
In terms of supply chain services and requirements, his advice is simple: “Whatever you think you’re buying, put it on paper, in a contract with a signature - not in an email. Make sure that the service you want to buy from a third party has everything you need included. We have seen a lot of examples of cargo thefts where people have said the security contract wasn’t part of the RFQ or the contract. That is why we always say, if you have a security contract in place make sure you pass it on to your suppliers. You must really understand your supply chain and who is involved. If you have any specific features that you want your product to be handled with, including security, make sure it is embedded in contracts, that people sign for it, and it is all based on a risk management programme.”
Björn adds: “When we start to poke around for the root cause of a loss, most of the time it relates to not properly identifying the risk of the security measures you are buying from a partner. So, basically, the trucker or logistics provider is doing it alone, using their own standards. We have also seen regular cases of no follow up. What services have you procured? Has the service been delivered? Have you got what you paid for? We recommend shippers to audit their logistic partners for compliance. If you find out during an audit that you didn’t get the service you bought but you had no loss, you were basically lucky.” As part of loss investigations, insurance companies will always validate if the insured product owner has made use of a supply chain which is sufficient enough to protect their cargo.
‘We recommend shippers to audit their logistic partners for compliance. If you find out during an audit that you didn’t get the service you bought but you had no loss, you were basically lucky.’
While the insurance market has been relatively soft in recent times, indicators suggest this is starting to change on a global level. “The US is generally the first to change and the US Marine Insurance market has hardened. We are seeing rate increases which are significant, so this suggests certain insurance companies are changing their risk appetite for marine insurance by cleaning up the books and only want what they consider to be good customers or exiting the market. So, if you have been a loss-making customer over the last few years, it is going to be challenging.
“We do not see the trend so strong in Europe right now but if the European market were to follow the US market, we will see an increase in insurance premiums. One upside will be that any increase in premium usually leads to companies focussing on having more resilient security programmes, which TAPA EMEA will be ready to support,” he says.
As TAPA EMEA embarks on the next stage of its development, Björn’s insight into the world of insurance will add a further dimension to the Association’s understanding of how companies are approaching supply chain resilience.
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