Data will drive growth of emerging semiconductor supply chain risks

Enhancing supply chain data is the biggest opportunity for insurance-related innovation in the semiconductor sector, according to a new joint report from Lloyd’s and WTW.

The report, the second in Lloyd’s Futureset’s ‘Rethinking supply chains’ series with WTW, highlights the supply chain challenges faced by the semiconductor industry, and how the insurance industry can collaborate with semiconductor firms to create more bespoke and effective solutions.

It suggests that more information available than ever before to build a view of supply chains, and that this is where partnerships with technology providers responding to operational efficiencies and market tools and services, such as risk management and supply chain diagnostic tools, can support translation and transmission – therefore accelerating the opportunities for insurers to innovate. 

The report also suggests that the semiconductor industry has been on a sustained journey of risk maturity, in response to a multidimensional supply chain that enables the industry. Although there is good awareness of their risks, with semiconductor businesses having heavily invested in risk management practices and increasingly partnering with third parties to provide new data sources in the face of ongoing global change, it says there is also recognition they can always do more, and semiconductor businesses are interested in exploring where they can work with insurers. 

Specifically, it suggests there is room for expert, data driven dialogue between the semiconductor industry’s technical stakeholders and the insurance market to ensure more effective knowledge transfer that can support innovation and semiconductor companies’ desires to purchase solutions that better meet their needs. 

This research also identifies several key barriers which are preventing growth and insurance gaps in semiconductor supply chains: 

  • Currently, there is a limited number of end-to-end supply chain products and solutions available from the global insurance market. Insurers’ appetite for end-to-end supply chain coverage varies, and many will tread cautiously by taking on few customers when approached. This can create a cycle whereby customer adoption is limited, feeding, in turn, the insurer perception that demand for insurer solutions is scarce 
  • The pandemic highlighted the gaps in insurance cover, with economic losses resulting from shortages and delays not covered by property and marine cargo policies. Managing these exposures is a major issue for companies, especially in a market that is likely to harden further in difficult economic conditions over 2023 and beyond 
  • Alternative risk transfer solutions are still relatively new to the market and depend on several data factors which can be difficult to articulate or quantify. In addition, where ART solutions are structured, the cost may be prohibitive 
  • The loss of a major supplier such as TSMC or ASML could have catastrophic financial consequences for the industry, such that capacity is simply not available unless an alternative approach is taken, such as mutuality of risk adoption or other forms of financing. 

To access the report, click here.