The US-based risk modelling software company today said the new product would help risk managers to better assess and reduce risk from perils such as hurricanes, earthquakes, floods, tornadoes and tsunamis.
This includes risk from direct and contingent business interruption losses across the entire supply chain network, as well as risk from physical damage.
Dr Akshay Gupta, director of AIR’s catastrophe risk engineering practice, said cat risk to supply chain networks had been brought into focus by 2010’s Iceland volcanic eruption and last year’s Japanese earthquake and tsunami, as well as major flooding in Thailand.
‘While the catastrophe risk to supply chain networks is quite complex, it can be effectively quantified. Once completed, the work involved to quantify this risk can also help expand risk assessment to other non-catastrophe perils,’ he said.
AIR explained that, while it was relatively straightforward to quantify the physical damage potential associated with each point on a supply chain network, processes traditionally used to account for the resulting impact on a supply chain have ‘considerable limitations’.
Dr Gupta said: ‘The existing method of assessing supply chain catastrophe risk is based on worst-case scenarios, establishing either 0% or 100% disruption one node at a time and propagating the impact through the entire the supply chain.
‘It does not include the likelihood or frequency of shutdown, nor does it consider the partial shutdown of a single node or the simultaneous disruption of multiple nodes. This traditional approach can now be improved to provide a realistic and comprehensive assessment of the supply chain’s catastrophe risk exposure.’
He added: ‘AIR’s CRE solutions combine a detailed network analysis with catastrophe risk models. As a result, partial damage and downtime states for all nodes can be simultaneously and explicitly considered.
‘CRE solutions also account for the level of disruption at each location from multiple perils. By quantifying the impact of these disruptions on the overall supply chain network, CRE solutions provide a much more realistic and reliable view of downtime and loss.’