3 Semiconductor Risks to Electronics Manufacturers

Demand from electronics manufacturers for specialized semiconductor chips is fueled by advanced technologies like artificial intelligence, electric vehicles, fifth generation mobile networks and more. Manufacturers’ dependency on the chip supply chain can leave them vulnerable and the COVID-19 pandemic exposed the fragility of the semiconductor supply chain, which is complex, global and interdependent.

"The semiconductor supply chain is highly specialized. While the semiconductor sector has remained relatively stable, there are ongoing variables in the supply chain that continue to put pressure on the industry’s ability to consistently meet demand, " said Brian Matzke, Electronics Manufacturing Lead for Travelers Technology & Life Sciences.

1. Product failures and defects from increasing chip complexity

As the power and sophistication of chips increase, the risk of defects and failures grows. More powerful chips are more valuable and may mean that individual product failures will have a larger cost to the manufacturer than has been the case historically. Additionally, the proliferation of devices that incorporate semiconductors means there are more opportunities for failures.

Mitigation

Ensure that semiconductor suppliers follow high-quality control standards. Where possible, electronics manufacturers should use contractual risk transfer techniques to help mitigate their exposures by ensuring that the right parties bear risk and responsibility for component delivery, defects or failures.

Coverage

• Product liability insurance provides protection for legal liability arising from bodily injury or property damage related to the manufacture and sale of products.
• Technology errors and omissions coverage helps cover the costs when electronics manufacturers are blamed for causing damage due to errors, omissions or negligent acts related to the products or services they provided.  

2. Disruptions from geographic concentration of supply chain 

Electronics manufacturers rely on a fragile network of global chipmakers, leaving them vulnerable to disruptions and at risk of not being able to deliver their finished products as planned. Key disruptors to the global supply chain include:

• Geopolitical disruption: Tensions between China and Taiwan, are a persistent source of concern.¹
• Extreme weather disruption: Increasing frequency of adverse weather patterns can disrupt the supply of raw materials and vital components.

Mitigation

Develop a predefined, well-documented and tested business continuity plan that clearly communicates how to respond to a disruptive event.

Coverage

Evaluate business interruption and contingent business interruption coverage needs.

3. Growing cyber threats

Growing digitization and automation of manufacturing processes and systems increases the threat of cyberattacks on electronics manufacturers and their semiconductor suppliers.

Mitigation

Constantly strive to protect your business’s systems and sensitive data. Adopting the five cyber readiness practices recommended by Travelers can help boost your cybersecurity profile.

Coverage

Travelers CyberRisk Tech is a flexible modular approach to providing broad coverage with the flexibility to meet the complex and distinct needs of today’s state-of-the-art electronics manufacturers.

Overall, Matzke is optimistic about the underwriting environment for electronics manufacturers, noting, “We’ve seen many electronics manufacturers who are increasingly proactive in managing semiconductor supply chain risks. Many are focused on creating greater supply chain resilience, and Travelers can help with mitigating the risks involved.”

At Travelers, we go the extra mile for electronics manufacturers with innovative insurance solutions and insights to help manage risk. 

Learn more about Electronics Manufacturing Insurance from Travelers or reach out to a Travelers representative.

Source
¹ https://worldpopulationreview.com/country-rankings/semiconductor-manufacturing-by-country