The ripple effect of the business interruption that affects the supply chain of the SMEs (from an insurance point of view)

Abstract

Globalization has introduced a systemic risk into supply chains which are put at risk especially by natural catastrophes. In the last years companies tried to find cheaper materials from overseas, to outsource operations and to use just-in-time practices just to improve the productivity of their supply chains, without considering the risks created by all these interconnections. Business interruption could be defined as a breaking or suspension of production of a business after a natural catastrophe or an accident, it is like an invisible threat that creates really visible losses. Italian companies still do not have an adequate insurance coverage, especially when taking into account the international comparison, only 4% of Italian companies has a business interruption coverage. The flexibility and cost-effectiveness approach are the strengths and the competitive advantage of the modern supply chains, but they increase also the vulnerability to disruption, so having a business interruption coverage is a necessity, not a luxury. This study investigates how SMEs can make supply chains more resilient, especially in the Italian context where companies are under-insured and natural catastrophes are increasing. The aim is to examines the complexity of supply chains and understand how natural catastrophes and accidents are increasingly putting them at risk, and to create a standard process to evaluate the risk of business interruption of the Italian companies.