Revealed – supply chain risks threatening the semiconductor industry

Lloyd’s and WTW have released a joint a report on the risks facing the semiconductor supply chain, revealing a multitude of challenges that threaten the $600 billion industry.

Semiconductors are a critical component of the $2.2 trillion electronics industry and are used in various technologies such as medical devices, vehicles, mobile phones, and even clean energy solutions. The industry is complex and global in nature, with manufacturing plants predominantly located in East Asia. Because of this, it is subject to numerous risks, including geopolitical tensions, earthquakes, and extreme weather events.

The report, titled “Loose connections: Rethinking semiconductor supply chains,” specifically highlights the macro challenges facing the industry, as well as its risk maturity and the growing interest in getting ahead of supply chain risks.

According to the report, the semiconductor industry is most concerned with the medium-term risk landscape, with 81% of survey respondents in WTW’s Global Supply Chain Survey identifying a lack of insurance solutions as one of the greatest challenges in the medium term.

The report also highlighted eight key supply chain risk drivers, including economic pressures, supply and demand changes, talent and labour, raw materials and components, technology, packaging and transport, regulatory/geopolitical/political risks and climate change and sustainability.

The semiconductor industry additionally recognised significant financial exposures in their supply chains, which traditional risk transfer cannot currently meet. As such, they favoured risk transfer at key moments in their chain.

Adopting a customer-centric view of risk could push the industry to act as an example of “a resilient, digitalized supply chain in a connected world,” the report concluded, particularly with the use of data and tailored insurance solutions to supplement retained risk.

“The semiconductor industry is acting now to respond to global demand and spark technological innovation,” said Rebekah Clement, director of sustainability at Lloyd’s. “While the sector is mature in its approach to risk management, there are always unforeseen events that can impact production. The insurance industry has a critical role in partnering with semiconductor businesses to help them build resilience to manage the supply of mission critical products and to keep our digitally connected world turning.”

“At the moment, insurances cover only small parts of the supply-chain risks,” added Hugo Wegbrans, global head of broking at WTW. “The solutions provided by our industry provide only a wafer-thin patchwork of protection. Semiconductor businesses need to explore different ways to manage the significant financial exposures to achieve true resilience. Traditional risk transfer will only be one component of achieving that.”

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