Discover the trend, meet the trendspotter.
Inflation and supply chain issues
“The HSB Claims department’s mission is to fulfill our promises to our customers at the time they suffer a loss. When I saw the impact the pandemic was having on life as we know it, I started thinking: What will this mean for our policyholders? Just as we saw how ill-prepared our healthcare system was, so was our economy, supply chain and distribution network vulnerable.”John Nosari,
HSB SVP Commercial Equipment Breakdown Claims
You probably don’t think about the effects of inflation and supply chain interruptions on the equipment businesses rely on to operate. We do.
The aftershocks of the COVID-19 pandemic had a dramatic effect on our economic environment.
A rise in inflation
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI), which measures the costs of goods and services over time, rose 4.7% in 2021 and 8% in 2022.1 HSB’s experience over the same period has been that the cost of equipment we insure has gone up an average of 16%. Equipment used in manufacturing processes has seen the highest percentage increase at 19%, followed by electrical equipment, air conditioning and refrigeration equipment, and boilers.
Supply chain interruptions
The Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSCPI), which measures supply chain conditions, has been higher than the standard deviation since January 2020.2
Although there are signs of easing pressure, progress is slow. At HSB, we have seen delays for replacement parts of up 22 weeks for refrigeration compressors and 18 months for computer numerical control (CNC) machines.
These two circumstances have combined to drive up costs and availability of key parts, sub-components, and machinery. The difficulty in securing skilled labor also plays a role. As a result of these economic pressures, a number of trends have emerged that weren’t prevalent pre-pandemic:
- A “replace vs. repair” environment. If parts aren’t readily available to repair the equipment after a breakdown, businesses might be forced to replace it instead, a practice many service providers embrace and might even encourage. Without the right insurance, this comes at a higher cost to the business.
- Increased business interruption days. The wait for replacement parts and delays in securing aptly trained repair professionals can lead to increased business interruption days, resulting in higher business income losses. HSB is seeing a 29% increase in the number of claims we pay that include a business interruption or extra expense payment.
- A “take-what-you-can-get” mentality. Businesses may find themselves in situations where they are forced to replace their trusted parts and equipment with less-familiar substitutes. As a result, it has never been more important for businesses to properly maintain their equipment in order to avoid making what could be tough decisions.
How HSB is taking on the trend
In addition to helping our policyholders get up and running fast following an equipment breakdown, we have partnered with HELIXintel, an easy-to-use online platform that allows businesses of any size to organize, track, and maintain their parts, supplies, and repair history in a single, centralized online platform. Learn more here.
At HSB, we’re constantly watching for trends, studying them, and identifying solutions.