In this article, Mamoru Tanouchi, Country Manager, Japan; Zakky Cheng, Country Manager, Taiwan & Hong Kong; and Jagjote Singh, Director of Crawford Forensic Accounting Services, examine why semiconductor claims are becoming increasingly complex and what insurers should be watching as manufacturing capacity continues to expand across Asia.
Semiconductors power everything from smartphones and electric vehicles to cloud computing and artificial intelligence. As Asia continues to strengthen its position as the world's semiconductor manufacturing hub, insurers are increasingly exposed to a unique class of high-value, highly technical manufacturing risk.
Semiconductor fabrication plants (FABs) are among the most sophisticated manufacturing environments in the world. Built at costs often exceeding USD 10 billion, these facilities rely on ultra-clean environments, highly specialised equipment and tightly controlled production processes. Even minor disruptions can have significant consequences.
Why semiconductor losses are different
Understanding semiconductor losses starts with understanding how semiconductors are made. The manufacturing process typically involves three broad phases: chip design, front-end wafer fabrication and back-end assembly and testing. During fabrication, silicon wafers undergo hundreds, and often thousands, of highly specialised processing steps, including deposition, photolithography, etching and testing before becoming finished products.
These processes take place within extremely clean environments. Wafers are transported automatically throughout the facility via extensive overhead transport networks and stored within sealed carriers designed to minimise contamination risk.
This highly engineered environment creates a unique risk profile. Nearly all production areas are cleanrooms, manufacturing equipment is exceptionally sensitive and expensive, and critical utilities such as specialty gases, ultra-pure water and environmental control systems are deeply interconnected throughout the facility.
As a result, losses are rarely confined to a single piece of equipment or a specific area of the site.
The challenge of invisible damage
One of the defining characteristics of semiconductor claims is that the most significant losses are not always visible.
Following an earthquake, fire, water event or power disturbance, buildings and equipment may appear largely intact. However, contamination, microscopic particles, vibration, or calibration issues can compromise production and affect product quality.
Assessing these losses therefore requires analysis that goes beyond traditional property damage evaluations.
"One of the biggest misconceptions in semiconductor claims is that if equipment appears intact, production can resume immediately," says Zakky.
"In reality, contamination, vibration, calibration drift or process instability can have a far greater impact on production than visible physical damage."
As a result, determining whether production can safely resume often requires technical assessments, process validation and specialist engineering reviews.
Why work-in-progress matters
While high-value machinery naturally attracts attention, some of the largest semiconductor losses involve work-in-progress (WIP) inventory.
Semiconductor wafers may take three to four months moving through hundreds of manufacturing steps before becoming finished products.
"Understanding where a wafer was in the manufacturing cycle at the time of loss is critical. If production is interrupted, partially completed wafers may need to be scrapped and result in substantial losses," Mamoru explains.
Business interruption often drives the largest losses
Property damage is only one part of the equation. In many cases, the largest financial impact comes from business interruption.
“Semiconductor business interruption losses rarely follow a straight line,” notes Jagjote. “Production shortfalls may only become visible months after an incident as inventory buffers are depleted and manufacturing bottlenecks emerge.” Even after production restarts, rebuilding work-in-progress and restoring normal throughput can prolong delivery delays and increase operating costs.
Yield performance also plays an important role in determining the extent of a business interruption loss. In semiconductor manufacturing, success is measured not simply by the number of wafers processed, but by the number of chips that successfully meet customer specifications. Following an incident, contamination, process instability or equipment recalibration can temporarily reduce yields, resulting in fewer saleable units despite production lines appearing operational. This can prolong the financial impact of an event well beyond the completion of physical repairs.
Another challenge arises from the industry's limited ability to recover lost production. Semiconductor fabrication facilities often operate at exceptionally high utilization rates due to the significant capital investment required to construct and equip a FAB. Unlike conventional manufacturing operations, lost production cannot always be recovered through overtime or additional shifts because critical bottleneck tools continue to dictate overall throughput. Where spare capacity is limited, production lost during the interruption may be permanently lost.
For insurers, this means the key question extends beyond how quickly damaged equipment can be repaired. Understanding cycle times, yield recovery, available make-up capacity and production bottlenecks are often essential to determining the true scale of a semiconductor business interruption loss.
What should insurers be watching?
For insurers, the key question is not only what was physically damaged, but how the policy responds to the production consequences that follow.
Areas to review closely include WIP valuation, contamination-related loss triggers, testing and recommissioning costs, prolonged business interruption periods, supply chain dependencies and bottleneck equipment. These factors can materially change both the scale and timing of a claim.
Semiconductor losses also require a detailed understanding of manufacturing data that would not typically be reviewed in conventional property claims. Metrics such as cycle time, work-in-progress levels, yields, tool utilisation rates and production movements can all influence the measurement of loss.
Asia's concentration risk
Many of the world's leading semiconductor manufacturers operate in Asia, particularly in regions exposed to earthquakes, typhoons, flooding and other natural catastrophe risks.
This concentration means a single event can create impacts extending beyond one facility and affect suppliers, customers and production schedules across multiple countries.
As semiconductor supply chains become increasingly interconnected, insurers are often required to assess losses from both a site-level and broader supply-chain perspective.
The need for specialist claims expertise
As semiconductor facilities become more advanced, claims increasingly involve a combination of property damage, contamination, inventory valuation and business interruption analysis.
Semiconductor claims expose the limits of conventional loss assessment. The greatest financial impact may lie not in visible damage, but in contaminated processes, lost work-in-progress, reduced yields and production constraints that surface over time. Specialist claims expertise is therefore essential to connect the technical, operational and financial aspects and to better understand the true scale of loss.
