Just-in-Time Dependency

Why it matters for underwriting

Just-in-time operating models improve efficiency by minimising working capital tied up in stock, but they also remove the buffer that would otherwise absorb a short supplier disruption. Underwriters need to know how thin this buffer is, because it directly determines how quickly a delay or quality failure at a single supplier translates into a stoppage at the insured’s own site – in a lean model, even a short-lived disruption a few days upstream can halt production immediately rather than being absorbed unnoticed.

Capturing the attribute and evidence

Proposal forms ask whether production depends on just-in-time delivery schedules and how many days or hours of output could continue on current stock alone for the most critical inputs. Underwriters corroborate the answer against the insured’s inventory policy documentation, actual buffer stock levels by input, and any supply chain risk mapping that also flags whether the underlying suppliers are geographically concentrated or exposed to shared transport routes.

Effect on coverage, premium and conditions

A just-in-time model combined with genuinely diversified, resilient suppliers and a monitored logistics chain can still support standard terms if the residual exposure is well understood and priced. A lean inventory policy combined with concentrated or fragile sourcing typically increases the frequency and severity assumptions underlying the contingent business interruption rate, and may prompt a sublimit, a shorter waiting period threshold, or a condition requiring minimum buffer stock for the most critical inputs.

Mitigation measures

Recommended measures include maintaining a defined minimum buffer stock for the most critical, hardest-to-substitute inputs even within an otherwise lean model, diversifying transport routes and supplier locations to avoid common-cause disruption, and building early-warning monitoring into the supply chain so that emerging delays are flagged before stock is exhausted.