Tom Schneider: An Overview of CBI Insurance

Posted August 23, 2024

Author – Tom Schneider, Account Executive – Horst Insurance

In today’s interconnected global economy, suppliers face significant risks from supply chain disruptions. Contingent Business Interruption (CBI) insurance is a critical safety net that helps suppliers mitigate financial losses when a key third-party partner, such as a supplier, manufacturer, or customer, experiences a disruption.  If your business hasn’t thought about the “what ifs” now would be a good time to have a conversation!

What is CBI Insurance?

Contingent Business Interruption (CBI) insurance covers income losses that occur when an essential third-party partner’s operations are disrupted due to covered events like natural disasters, fires, or cyberattacks. Unlike traditional Business Interruption (BI) insurance which covers direct losses, CBI protects against indirect losses that result from issues within the supply chain.  If you have one supplier and no other partnerships to depend on, this insurance should be a priority.

Why Suppliers Need CBI Insurance

  •   Supply Chain Dependence
    • Suppliers rely on various partners to keep operations running smoothly.
    • A disruption anywhere in the chain can lead to significant delays and financial harm.
  • Global Risks
    • With global supply chains, disruptions can occur anywhere, from natural disasters to political events, impacting business operations.
  • Customer Expectations
    • Reliable delivery is crucial in maintaining strong customer relationships.
    • CBI insurance helps suppliers meet these expectations, even during disruptions.

Key Considerations

  •    Identify Critical Partners
    • Determine which partners are vital to your operations and would have the most impact if disrupted. Have conversations with those suppliers about their contingency plans to get the product to you in the event of a disruption.
  • Understand Coverage
    • Review your CBI policy to know what perils are covered and ensure the coverage limits are adequate.  Make sure the supplier’s locations are within the coverage territory of the policy. Also, ask the questions. For example, if there is a cyber-attack at a key distributor, would my current cyber policy respond to the interruption?
  • Evaluate the Waiting Period
    • Ensure the policy’s waiting period aligns with your business’s risk tolerance and financial capacity.  How long could a typical interruption impact your business?

Conclusion

CBI insurance is a vital tool for suppliers, offering protection against the financial fallout of supply chain disruptions. By securing the right coverage, suppliers can maintain stability, protect their revenue, and uphold their commitments to customers, even in the face of unexpected challenges.  When in doubt, ask your insurance broker.