Opinion: Review coverage options to mitigate risks of tariffs, embargoes

Jeff Eiserman

As much as many of us want to stay away from the news and social media, it is unlikely you could hide from the news on recent tariff battles between the U.S. and major trading partners like China and the EU. I know we are all hopeful that the back-and-forth negotiations will result in long-term benefits for all of us. In the meantime, the market is experiencing a heightened level of uncertainty that puts pressure on manufacturers and consumers alike. 

Manufacturer struggles
Tariffs likely mean price increases for raw materials, and ultimately finished products, but can they be passed along to customers? Because of this, many manufacturers are being forced into diversifying vendors in an effort to save costs and spread risk. But these efforts uncover new risks, like potential regulatory issues in different geopolitical zones, possible changes in logistical management and potential quality issues with untested relationships. In response, many have attempted to stockpile inventory, which puts pressure on cash flow, storage capacity and potentially profit margins.   

What solutions are available? While most would not think of insurance as the first place to look, our industry is responding with some unique products that could potentially help. 

Possible insurance solutions

1. Business interruption and contingent business interruption. Traditional business interruption insurance is designed to provide coverage for loss of income and extra expenses that result from a covered property loss. Some insurance companies will extend this coverage if the property loss is suffered by a supplier or customer. With underwriting approval, you may be able to extend coverage if the loss is caused by a tariff; ultimately causing a supplier to shut down or delay production. As you can imagine, underwriting can be exhaustive making this type of insurance difficult to obtain.
2. Trade credit insurance. Tariffs can impact all levels of the supply chain, exposing manufacturers to an increased risk of credit defaults. Trade credit insurance can provide manufacturers protection from nonpayment due to these issues and others. While not overly prevalent, and potentially expensive, it could be something to consider.
3. Political risk insurance. This highly specialized insurance product is typically only for the largest of manufacturers that are exposed to extreme international risk exposure. However, the recent tariff battles have increased the likelihood of it being a potential option. In addition to some other things, it can provide financial indemnity to companies that have been impacted by tariffs or embargoes imposed by governments.
4. Captive insurance options. A captive is basically an insurance company formed and owned by its members as an alternative to standard insurance. By nature, captives can possibly provide more flexible insurance options than standard insurance with the potential benefit of fixed cost savings. It would be difficult to recommend a captive insurance solution for a manufacturer simply because of exposure to tariff risks. But many companies, not just manufacturers, are looking for alternatives to managing risk and insurance and including insurance for tariff related issues could be a possibility.

The recent tariff battles have caused uncertainty for all of us, especially manufacturers. I know that the struggles listed above, along with possible insurance solutions, are just the beginning of the discussion and not considered to be all-inclusive solutions. But if these issues are impacting your business, I highly recommend the following:

• Analyze your supply chain risks
• Engage your trusted advisers, especially in technology, banking and insurance, as early as possible
• Analyze your insurance program and evaluate possible solutions

It is easy to feel powerless to the global economy and pressures from tariff battles, but it is never too late to reach out to your trusted adviser team to start your plan.

Jeff Eiserman is a risk adviser at Ollis/Akers/Arney. He can be reached at jeff.eiserman@ollisaa.com.