Rethinking Supply Chains in a Fragmenting Global Economy
From tariffs to tech bans, climate shocks to shipping chokeholds, international supply chains are being stress-tested in ways most businesses weren’t built for.
Key Takeaways
Supply chains are vulnerable to trade shifts, climate events, regulatory pressure, and geopolitical shocks.
Most insurance programmes have gaps, especially around unnamed suppliers and non-physical disruptions.
Review your contingent BI, trade credit, and political risk covers to make sure they match your real exposure.
Map your supply chain risk. Don’t just list suppliers, understand where bottlenecks and overlaps exist.
Balance resilience with cost-efficiency by diversifying critical inputs, stress-testing suppliers, and building optionality into sourcing.
The new age of fragmentation
For the last two decades, global trade ran on muscle memory. Offshore production. Just-in-time delivery. Scale efficiencies. That certainty is gone.
What replaced it is a harder, more political world. Trade flows are splintering along new lines. Security trumps efficiency. Carbon costs are being priced in. Governments are intervening more—through tariffs, bans, and subsidies—and supply chains are caught in the middle.
We’ve seen this play out across multiple fronts:
In early 2024, the US expanded its restrictions on AI chip exports to China and flagged potential sanctions on related tooling.
Australia’s biosecurity stance led to delays and temporary bans on imports from countries with different animal welfare standards.
The EU began phasing in its Carbon Border Adjustment Mechanism (CBAM), imposing compliance burdens on companies exporting into Europe from carbon-intensive jurisdictions.
Attacks on commercial vessels in the Red Sea forced carriers like Maersk to reroute around the Cape of Good Hope, driving up shipping times and costs for Asia–Europe trade.
These aren’t isolated events. They reflect a structural shift. The old assumption—that goods can be made cheaply in one place and reliably shipped anywhere—no longer holds.
Why supply chain risk looks different now
Not all disruption comes from blocked ports or missing parts. Today’s supply chain risk is layered, complex, and increasingly invisible until it hits.
Here’s what’s driving the shift:
Tariff and trade risk
Political decisions are reshaping the economics of trade. New tariffs or export bans can be imposed with little warning, disrupting established flows and making pricing volatile.
Geopolitical risk
Supply chains touch multiple jurisdictions. That means exposure to sanctions, investment restrictions, regulatory divergence, and in some cases, regime risk. For industries reliant on specific countries (e.g. rare earths, semiconductors, agribusiness), the risk isn’t theoretical.
Environmental risk
Drought, floods, and heatwaves are now common causes of delay. Extreme weather and regional climate instability are now common causes of delay, affecting both logistics routes and production hubs across the globe.
Regulatory risk
Governments are increasing transparency demands. Australia’s modern slavery laws, the EU’s Corporate Sustainability Due Diligence Directive, and ESG reporting regimes all push responsibility down the chain. Firms must now demonstrate not just that goods arrived but that they were ethically and legally sourced.
Reputation risk
Brand damage can occur even when the misconduct happens deeper in the supply chain. Allegations of forced labour, environmental harm, or unethical sourcing may originate with a supplier, but the reputational fallout often lands on the end brand.
📌 In 2024, several global brands faced shareholder pressure over sourcing links to Xinjiang and other high-risk regions. Insurers are now scrutinising these links more closely, with some professional indemnity and D&O policies excluding ESG-related exposures where proper diligence hasn’t been demonstrated.
How insurance responds (and where the gaps are)
Insurance can help, but only if the policies are built for the real shape of risk.
Contingent Business Interruption (CBI)
CBI cover can respond when a named supplier suffers a disruption. But it’s often limited to direct (Tier 1) suppliers, leaving a gap if the issue sits further upstream. Many policies also require physical damage as the trigger, ruling out disruptions caused by sanctions, climate, or regulation.
Trade Credit and Political Risk Insurance
These are increasingly being used to hedge against counterparty default and government interference. Political risk insurance, in particular, has seen a resurgence in sectors where expropriation, currency controls, or embargoes are on the rise.
📌 After Russia’s invasion of Ukraine, firms with manufacturing operations or receivables in Eastern Europe scrambled to review their political risk cover. Many found their limits outdated or triggers too narrow to respond to the evolving situation.
Marine and Cargo Insurance
Marine insurers quickly raised war premiums and rerouted underwriting priorities in response to conflict zones and shipping delays. But again, these covers tend to focus on physical loss—less so on delay, regulatory detention, or secondary impacts.
Cyber Supply Chain Risk
Less visible, but no less important. A ransomware hit to a critical supplier can paralyse downstream operations. Some cyber policies provide contingent coverage, but policy wording varies widely—and the insured must often prove a direct link.
🔍 Underwriting Scrutiny is Rising
Insurers now want detailed answers—where your critical suppliers are based, how you manage vendor risk, and whether you’ve mapped second-tier dependencies. Generic answers won’t cut it. If you can’t map your supply chain, you may not be able to insure it.
What risk management needs to look like now
For risk teams and boards, the conversation is shifting. It’s no longer just about cost and efficiency. It’s about resilience and optionality—especially when the next disruption might come from a warzone, a courtroom, or a weather map.
Here’s where the focus is going:
Find your single points of failure
Many businesses still can’t name their Tier 2 or Tier 3 suppliers. That’s a problem. You might have a backup for your Tier 1 manufacturer in Malaysia, but if both rely on the same pigment factory in Gujarat, you’ve got a bottleneck.
Some firms are now investing in supply chain mapping software and scenario-based stress testing. Not just where delays might happen—but how they’ll affect inventory, revenue, and customer experience if they do.
Rethink sourcing geography
It’s tempting to look at cost alone. But in practice, a slightly more expensive supplier in a low-risk jurisdiction may be better than the cheapest option in a volatile one.
The most resilient firms are building regional redundancy—sourcing the same critical input from two or more suppliers in different jurisdictions, ideally with different climate and political profiles.
Review your triggers and exclusions
Many contingent BI policies only respond to physical damage at a named supplier’s site. That excludes sanctions, ESG compliance issues, cyberattacks, and regulatory shut-downs.
If those risks matter to your business, your insurance programme should reflect it. That might mean:
Expanding your definition of an “insured event”
Seeking non-damage BI or cyber supply chain extensions
Reviewing political risk and trade credit limits annually, not just at renewal
📌 Some clients are now using parametric covers to protect against shipment delays or climate disruptions. These pay out based on measurable events (e.g. port closure, rainfall index) rather than traditional loss adjustment processes.
Tighten vendor diligence
Risk and procurement teams must work together more closely, especially when onboarding new vendors or stress-testing existing ones. It’s not enough for a vendor to be technically capable—they also need to pass ESG checks, prove business continuity capability, and show insurance of their own.
Risk questions worth asking:
Do our key suppliers have cyber insurance and an incident response plan?
Are they located in areas with rising climate or conflict exposure?
Are we named as an interested party on their business interruption or liability cover?
What to watch next
Supply chain risk isn’t going away. If anything, it’s becoming more fluid and harder to contain. But there are also promising shifts happening in how businesses and insurers are responding.
Here are three areas worth watching:
1. More flexible CBI cover
Traditional CBI policies often fall short—especially when disruption comes from an unnamed or second-tier supplier.
To address this, some carriers are now offering more dynamic options, including:
Coverage for unnamed suppliers (with pre-agreed disclosure thresholds)
Triggers based on cyber events, regulatory shutdowns, or even ESG violations
Sector-specific programmes that reflect the unique exposures in industries like tech, pharma, and food
These changes reflect mounting pressure from clients and brokers who need cover that matches the way supply chains actually operate.
2. Embedded supply chain intelligence
Firms are beginning to pair real-time shipment data, satellite monitoring, and AI-powered ESG screening with their insurance and risk management tools.
This unlocks faster claims, better underwriting, and stronger internal reporting. It also gives risk teams leverage in supplier negotiations and board-level decision-making.
3. The rise of captives and structured solutions
Where the commercial market won’t go, captives and structured solutions increasingly will. We’re seeing this particularly with:
Regional climate risk (e.g. drought hitting suppliers in Latin America)
Concentrated manufacturing exposures in high-risk countries
Large firms trying to control pricing volatility in transport or input costs
If traditional insurance stops short, finance and risk teams are collaborating on bespoke protection strategies that blend captives, parametrics, and credit-based solutions.
Final thought
Most businesses didn’t build their supply chains with geopolitics or climate volatility in mind. But that’s the world we’re in.
You don’t need to abandon efficiency but you do need to design for resilience. That means knowing where your risks are concentrated, having the tools to measure them, and the coverage to respond if things go sideways.
Because global supply chains don’t break cleanly—they ripple. The smarter firms are already adjusting.