Trade losses outgrow traditional business interruption cover

Non-damage cover remains limited as supply-chain disruption, tariffs, and geopolitical events create losses beyond traditional physical-damage triggers.

Traditional business interruption insurance is struggling to address trade-related losses that occur without physical damage, leaving businesses exposed to supply-chain disruptions, tariffs and geopolitical events.

Standalone business interruption coverage has penetration of about 23.1%, whilst non-damage business interruption coverage stands at around 16.7%, according to a GlobalData survey.

Ramnivas Mundada, Director of Economic Research and Companies at GlobalData, said traditional policies typically require physical damage, such as a factory incident or fire, before a claim is triggered. That structure leaves a gap when operations are disrupted by trade restrictions or problems elsewhere in the supply chain.

“The current coverage is not comprehensive enough,” Mundada said, adding that policies require greater customisation for non-damage losses.

Insurers could provide such protection without making premiums prohibitive, but underwriting would need to distinguish between different sources of disruption. Mundada said clearer triggers and modular designs could address exposures such as tariffs, port delays and supply-chain interruptions separately.

A blanket approach could push pricing significantly higher because potential losses differ substantially across risks and businesses.

The protection gap is particularly relevant for industries dependent on international trade and concentrated supply chains.

Marine, shipping and cargo businesses face exposure from disruptions affecting major trade routes, whilst energy companies can be affected by interruptions involving oil-producing markets. Manufacturing also faces significant risks because production can depend on components sourced from multiple countries.

Logistics, transport and semiconductor companies face similar vulnerabilities. Mundada pointed to the automotive industry’s experience during the 2021 chip shortage as an example of how component disruptions can generate substantial losses.

For insurers, addressing these exposures will require more targeted underwriting rather than extending traditional business interruption policies wholesale. Separating individual disruption risks could allow coverage to better reflect specific business needs whilst keeping pricing manageable.