For a business, a physical damage event – such as a flood or a fire – can cause operational downtime and potential business interruption (BI) losses. Physical damage at a covered third-party location, such as a supplier, may trigger contingent business interruption (CBI) cover, depending on policy wording.¹ However, the duration of recovery can also be affected by broader supply chain conditions that are not necessarily insured on a standalone basis. As noted in sigma 2/2026, the Middle East conflict has been the fourth major global supply shock in six years, highlighting the wider disruption environment in which insured BI or CBI events may now unfold.² Infrastructure failures, logistics bottlenecks, shipping delays or trade restrictions may delay repairs, replacement equipment or inputs, thereby compounding the severity of an insured BI or CBI event.

Table 1: Supply chain failure modes and illustrative BI/CBI impacts

An analysis of public corporate disclosures reveals that many BI and CBI exposures remain unmapped and potentially underestimated.³ We found that only 43% of Fortune 500 European companies report conducting physical risk assessments of their own facilities. Dependencies on critical suppliers, utilities, logistics networks and digital infrastructure can be even less visible: just 7% of analysed companies report extending that scrutiny to their suppliers' facilities. Only one in six of those assessing their own operations report looking upstream. Consequently, many risks may remain unidentified until a disruption occurs.

Figure 1: Assessment of physical risk disclosures across Fortune 500 Europe public corporate reports

Critical dependencies often sit beyond the insured location itself or even beyond the location of its suppliers. For example, buildings with no direct flood inundation can face several days of outage due to flooding at supplying power substations. Our analysis shows that less than 2% of companies report assessing the wider infrastructure they depend on.⁴

Mapping these dependencies for specific locations is key. Two commercial properties connected to the same power substation can experience very different numbers of downtime days when affected by windstorms due to differences in their infrastructure dependencies. Power delivery to the first property may be through overhead lines while the second gets power from underground lines, not vulnerable to the wind peril.

The depth of preparedness varies significantly by sector (see  Table 2). Chemicals sector leads across multiple dimensions, with 86% of companies acknowledging extreme weather vulnerability and 57% identifying concrete mitigation measures. Motor vehicles and parts (19%) and industrials (16%) lead in supplier facility assessments, likely reflecting lessons from events such as the 2021 Japanese chip plant fire that halted a third of global automotive microcontroller production and disruption during the Russia–Ukraine war to neon gas and wiring harness supplies.¹⁰

Table 2: Fortune 500 Europe physical risk disclosure by sector and assessment scope (selected sectors)

As climate change intensifies events such as floods and heatwaves, climate-related risks to supply chains including the likelihood and impact of disruptions, are expected to grow. Understanding where business locations are exposed to these evolving hazards may benefit effective risk management and long-term resilience.

The case of semiconductor manufacturing in Taiwan illustrates this challenge. Taiwan is the global epicentre of semiconductor manufacturing, making its hubs critical nodes in technology supply chains. These facilities face converging climate risks: in 2021, Taiwan's worst drought since 1964 forced a 15% reduction in water supply to major manufacturing hubs.¹¹  In July 2025, parts of southern Taiwan received over a year's worth of rainfall in a single week, flooding facilities including TSMC's Chiayi plant. ¹²

Figure 2: Projected increase in flood losses at the Southern Taiwan Science Park, three climate change scenarios

Swiss Re's flood models show that many areas in the Southern Taiwan Science Park lie within flood zones, with flood losses at key semiconductor manufacturing hubs projected to increase by 4% by 2030 and 36% by 2050 under the middle-of-the-road climate change scenario (SSP2–4.5, Swiss Re downscaled CMIP6 model ensemble). 

In addition, the loss of use of flooded or landslide-obstructed access roads could delay the movement of raw materials and finished products, further disrupting supply chains. Heatwave days are also projected to increase from approximately four to five per year to 52 to 68 per year by 2050 for these same locations (SSP2–4.5), potentially compromising cooling systems critical to semiconductor production. ¹³

Advanced tools can now model downtime and infrastructure dependencies at scale.^{14  15} However, the models are only as good as the underlying input data, and our disclosure analysis shows that many companies still lack the supplier, infrastructure and logistics data needed to assess these risks fully. For insurers, the emerging risk lies in hidden concentrations and dependencies that may only become apparent after a loss. Better mapping of these dependencies can improve accumulation management and support long-term resilience.