Trade disruption insurance
Cover for lost margin and extra costs caused by a supply chain interruption without physical damage: embargo, border or port closure, strike, supplier failure.
Classic contingent business interruption cover usually requires physical damage at the supplier: fire, flood, explosion. Yet many supply disruptions involve none. A government bans the export of a product, a border closes, a port is blocked by a strike or political crisis, a sole supplier goes bankrupt, a canal is obstructed. Trade disruption insurance covers these non-damage events. Born in the London specialty market, at the crossroads of political risk and property insurance, it pays lost gross margin and extra costs incurred to find another source, when the interruption exceeds a waiting period. The policy lists covered events, often political, regulatory, logistical and natural, and names the suppliers, customers, routes and countries concerned. Underwriting it requires a detailed map of the insured's value chain, rarely available: many companies know their first-tier suppliers, few know their second or third tier. The 2020 pandemic and trade tensions showed both its value and its limit: systemic events hit all insureds at once and are often excluded or heavily sublimited.
Textbook case: a European battery maker depends on a graphite supplier located in a country that abruptly introduces an export licensing regime, as China did for graphite on December 1, 2023. For four months deliveries stop without any physical damage. Its trade disruption policy covers the lost margin beyond a thirty-day waiting period and the extra cost of a substitute supplier.
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