Single-Source Suppliers

Why it matters for underwriting

A single-source supplier relationship means that the insured’s own output is only as resilient as the weakest link in someone else’s operation, with no fallback if that link breaks. Underwriters need to know where such dependencies exist because they are among the most common drivers of contingent business interruption losses, and because the resulting exposure is frequently invisible in the insured’s own property and machinery data – the loss trigger sits entirely outside the policyholder’s control.

Capturing the attribute and evidence

Proposal forms ask whether any critical raw material, component or service is sourced from a single supplier or a single production site, and, if so, request the supplier’s name, location and the share of revenue or production it supports. Underwriters corroborate the answer with the insured’s supplier list, volume and substitutability data, and, for larger or more complex accounts, a dedicated risk engineering supply chain mapping exercise that grades each named supplier by criticality and switching time.

Effect on coverage, premium and conditions

Diversified sourcing with qualified back-up suppliers supports broader named-supplier cover and standard pricing. Confirmed single-source dependencies without a viable alternative typically lead to a sublimit or named-supplier restriction on the contingent business interruption cover, a loading reflecting the concentration risk, or a condition requiring evidence of an active diversification plan; severe, unmitigated dependencies on financially weak or geopolitically exposed suppliers can result in exclusion of that supplier from cover.

Mitigation measures

Recommended measures include qualifying and onboarding a second source for the affected input, negotiating priority allocation or minimum-stock agreements with the existing supplier, building buffer stock to bridge a switch-over period, and formally mapping the supply chain to detect hidden single-source dependencies further upstream.