Rethinking semiconductor supply chains in Europe

For everyone, at every level, the last three years have been a time of enormous change. A period of disruption, dislocation, change, and opportunity is currently affecting society, businesses, and individuals. Examples include Brexit, Covid-19, heightened geopolitical tensions, the war in Ukraine, and inflation. 

Before the pandemic and the Ukraine conflict, the world was frequently referred to as VUCA (Volatile, Uncertain, Complex, and Ambiguous). However, commentators and business leaders had already begun to discuss a BANI (Brittle, Anxious, Non-Linear, Incomprehensible), RUPT (Rapid, Unpredictable, Paradoxical, Tangled), or TUNA (Turbulent, Uncertain, Novel, Ambiguous) world. 

It is debatable which of these we are now, but we should probably add the word Systemic to the list, if by systemic we mean an event with first, second, and third-line effects capable of bringing an entire industry or economy to its knees, as well as new and emerging risks linked to climate, digital, cyber, and geopolitical developments. 

Against this backdrop, Lloyd’s Futureset devotes significant time to research, scenario analysis, and brainstorming solutions for these types of systemic and new risks. Customers of Lloyd’s – corporations as well as public bodies, SMEs, and individuals – are experiencing unprecedented levels of disruption, and they require insight and solutions from their insurers more than ever.  

The Ukraine report identified supply chain as a major area of disruption. Futureset  partnered with WTW to launch the Rethinking Supply Chains report series and, following a successful deep-dive into global food supply chains, our attention then turned to the supply chain challenges currently faced by the semiconductor industry.

onsider your phone, the electric vehicle and solar panels required to meet net zero targets, or essential medical technology. All of these rely on semiconductors,  but the global supply chain’s stability  is now more precarious than ever due to environmental, geopolitical, economic and technological developments. 

As the semiconductor industry has grown in size, volume, and complexity, so have supply chain risks, particularly driven by heightened geopolitical tensions and rising national interests. 

Given the complex landscape they operate in, semiconductor suppliers take risk seriously: investing heavily to ensure they have robust contingencies in place as well as embracing technology to support operational efficiencies. Importantly, this includes improving exposure visibility and digitising supplier data, which allows insurers to build a more detailed picture of an exposure. 

Entirely eliminating potential supply chain risks will never be possible for the sector, but with  abundant data to fuel modelling, and emerging and innovative insurance solutions becoming available, the ability to analyse outcomes and the opportunity to mitigate impacts is growing. 

Semiconductor businesses are not alone in these investments. Governments and regional blocs are actively rolling out new multi-billion-dollar policies and legislative packages to strengthen and onshore semiconductor activities, in what they see as a national security imperative. In Europe this includes the EU Chips Acts, worth €43bn EUR in public and private investments.  

These investments will need protection, and global insurance markets are responding to new construction projects – relationships that are valued by the semiconductor industry, who are keen to understand where insurers can support supply chain innovation.