Semiconductor industry sees weather as key risk, but lacks protection

The global semiconductor industry has faced its fair share of risk over the last few years, thanks in the main to geo-political factors and supply-chain disruption caused by the pandemic.

But the industry currently identifies severe weather and climate change as one of its biggest risks going forwards, as well as one of the top two external factors that have caused financial losses to its business over recent years.

But, despite the high-awareness of weather risk in the global semiconductor industry and supply-chains, the use of risk transfer and insurance is not as high as you might expect and semiconductor business fear being uncovered for climate driven weather disasters and are nervous about frequency and severity trends as well.

In a new report from broker WTW, the semiconductor industry was polled on attitudes to risk and weather is one area of particular concern.

Semiconductor manufacturing is often clustered in regions with high weather and natural catastrophe risk, WTW points out.

As a result of which, the broker says it is concerning that less than half (46%) of businesses say they have cover that would protect them against the effects of severe weather in the supply-chain.

Just over half (51%) said they have some cover, but they don’t really know how sufficient that will be.

In the regions where weather has already been demonstrated as a threat to supply-chains and the semiconductor industry, participants still don’t know how well covered they are, with 67% in Asia Pacific and 41% in North America saying they are ensure if they are fully covered against weather impacts to the supply chain by their insurance.

As ever, capacity and a general lack of it is cited as a factor, and lack of capacity was cited as an issue by 24% of North American firms and 26% in Asia Pacific.

It’s also notable that contingent business interruption is seen as one of the top-ten threats to the semiconductor industry, while environmental, weather and climate change is seen as the third most important threat.

With coverage gaps evident and semiconductor industry participants not knowing whether they are protected fully or not, it seems an industry where parametric covers could be a beneficial use-case.

The supply-chain disruption caused by weather or natural catastrophes, as well as the downtime to plants, transport and other elements of these businesses that can result from events, all call for some kind of responsive protection against weather and climate risks.

If traditional insurance is simply not providing the coverage, or capacity is lacking, then alternative reinsurance markets could step in and provide robust and responsive solutions to the problems an industry like semiconductor manufacturing could face.

Of course, there’s going to be a need for the brokers of this world to improve their sales pitch, to encourage companies to buy add-ons and weather-specific layers of parametric coverage.

But if the threat is as real as WTW’s survey data implies, then growing uptake of these kinds of risk transfer solution can surely only be a matter of time in areas like the global semiconductor industry.