Strike expected to magnify claims inflation

July 14, 2023 — THE LABOUR dispute at the port of Vancouver will likely negatively affect the supply of auto parts and construction materials, and that will in turn worsen the inflationary claims environment for Canadian p&c insurers, DBRS Morningstar has warned.

The credit rating agency said in a report earlier this month that the strike will also test post-pandemic supply chain insurance coverage.

It noted that in the aftermath of the pandemic, businesses have become much more aware of the risks associated with supply chain disruptions and the benefits and limitations of insurance coverage.

While traditional property or marine insurance usually requires a physical loss or damage to trigger a claim, even for business interruption, more specialized supply chain disruption insurance products are now available to protect businesses from supply chain risk.

Supply chain insurance coverage specifically protects against strike actions and other labour issues, in  addition to other risks, filling some of the coverage gaps identified because of the pandemic. Insurers have also improved the clarity of contract wordings in their commercial insurance policies to highlight risks not covered by commercial and marine policies.

DBRS said that given their relative novelty, supply chain insurance products have low take-up rates, and it does not expect the line to generate large losses.

It said that with the high potential cost of a prolonged supply chain disruption, reinsurance also plays a significant role in reducing the risk exposure and allowing local providers to offer supply chain insurance coverage.

“Large global insurers and reinsurers are therefore likely to be the ultimate holders of any significant supply chain risk exposure.”

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