When a strike brings production lines to a standstill

When a strike brings production lines to a standstill

When a strike brings production lines to a standstill

The FINANCIAL -- Allianz -- Key supplier parts are quite literally being left stuck on Germany's train tracks. The unprecedented strike organized by German train drivers could result in production downtime in German industry. According to an estimate performed by the Institute of the German Economy (IW) in Cologne, the damage could soon rise from an amount in the single-digit millions to over EUR 100 million a day as of the fourth day of the strike. Volker Münch, expert for business interruption insurance at Allianz Global Corporate & Specialty (AGCS), explains the extent to which such damage is covered.

Q. Can companies use insurance to cushion the blow of the financial losses caused by the strike?

A. Unfortunately, conventional P&C and business interruption insurance does not provide cover if the strike results in delivery delays and production downtime. This is because this sort of cover always requires physical loss or damage, e.g. a fire at a supplier that caused the interruption. AGCS does, however, offer new products like the "Non-Damage Business Interruption" policy, which covers business interruption losses even without any preceding physical loss or damage. This sort of policy covers triggers like strikes, power cuts, closures enforced by the authorities or specified political risks.

Q.  Are there a lot of companies that already have this sort of insurance?

A. These products are relatively new additions to the market and only a few companies have opted to take them out so far. What is more, these products are tailored to suit our major industrial customers. But we have noticed that the interest in these products is on the rise, especially after events like the rail strike. Many companies are becoming more aware of how vulnerable their global supply chains are. If one element of the chain is taken out of action, this can soon have wide-reaching implications.

Q.For which companies would this sort of protection be particularly important?

A. Companies from the automotive, electronics and engineering industry are particularly at risk. These companies have hundreds, sometimes thousands, of suppliers and generally produce on a just-in-time basis, i.e. with minimal inventory levels. Delivery delays or supplier unavailability can soon bring production lines to a standstill.