Semiconductor industry – Challenges, latest trends and road ahead

The Indian semiconductor industry was import-driven, primarily importing from countries including China, Taiwan, USA and Japan. The vision of India’s Atma Nirbhar (self-reliance) in electronics and semiconductors market gained momentum with the Indian Government’s approval of INR 76,000 Crores for the development of semiconductor and display manufacturing in India.

With growing markets, not just for automobiles but for smart wearables, mobile phones etc., the demand for semiconductors is at an all-time peak.

Emerging trends in the industry

• Skilled workforce and cost-effective solutions: India has a large pool of engineering and technical talent, and the availability of highly educated and trained workforce has been a key factor in attracting semiconductor companies to India. In fact, the semiconductor market is projected to generate employment for 600,000 people by 2030.
• Role of Government policies: India has established itself as a globally competitive hub of Electronics System Design and Manufacturing (ESDM) through initiatives like “Make in India” and “Digital India”. The National Policy on Electronics (NPE) aims to boost domestic manufacturing, attract investments, encourage innovation and create a conducive ecosystem for the electronics sector.
• Growth and development: With the rapid growth of the Indian economy and the increasing adoption of electronic devices, the demand for semiconductors is also growing. India’s semiconductor market is expected to reach USD 64 billion by 2026, as compared to its last valuation of USD 22.7 billion in 2019.
• Strategic importance: The Indian Government aims to reduce its dependency on imported semiconductors and instead aims to build indigenous capabilities within the country.

Challenges faced by the industry

• Supply chain challenges: Ensuring smooth operations at each stage is essential to avoid any shortages and delays in product availability, thereby securing a robust supply chain.
• Geopolitical environment: The nature of the industry makes it susceptible to trade conflicts between countries. Sanctions may impact the flow of material and components, leading to increased supply chain issues.
• Technological upgradation and talent – Workforce challenges: The industry involves a highly complex process and investments in research and development (R&D) and fabrication facilities. As chips become smaller in size, the need for innovation and skilled labour are major concerns and significant contributing factors in the space.
• Intellectual Property (IP) Protection: IP theft and cloning are challenges that can lead to revenue losses and reputational risks for organisations.
• Cyber risks: Frequency and severity of cyber losses have been at an all-time high following digitalisation. Cybersecurity poses a concern in disrupting the supply chain. Thus, ongoing monitoring of the software supply chain should be implemented to detect vulnerabilities and risks.
• Environmental, Social and Governance (ESG) risks: The industry’s high water and energy consumption, as well as the generation of hazardous waste, highlights the importance of adopting sustainable practices. Moreover, ESG risks can emerge due to the use of conflict minerals, poor labour practices, or insufficient oversight of the suppliers’ environmental practices.

WTW’s semiconductor industry losses survey

WTW surveyed leaders in the semiconductor industry to gain insights into supply chain risks and challenges. The expansion of the semiconductor industry in India has brought a corresponding increase in risks to business supply chains.

With the current landscape of India’s semiconductor industry and the increasing frequency of losses – Manmade, natural catastrophe (Nat Cat), liability, credit, ESG – it is crucial to prioritise risk management while setting up the growth factory for the Indian economy. Below is the list of issues organisations face in today’s landscape:

• Risk retention
• Quantification of insurable risk
• Understanding of tradeoff between cost and risk
• Inflation and Nat Cat exposures continue to impact pricing
• Hardening premiums because of ESG risk and cyber loss control

How can WTW help?

WTW offers innovative and bespoke solutions tailored to the dynamic environment. Below are the key considerations:

• Risk assessment: Gain awareness of the types of risk and their severity levels. By identifying and quantifying exposures, risks can be mitigated effectively. Our Risk and Analytics (R&A) tool enables us to conduct cost-benefit analysis with ease.
• Data-driven decision support: Supports insurance strategies on optimising TCoR (Total Cost of Risk), retention / deductible analysis.
• Arriving at correct sum insured values: Helps in maintaining a right balance between exposure and premium.
• Cyber Quantified: Helps organisations in evaluating cyber loss potential with decision support to optimise their risk management strategy. WTW’s global risk evaluation tool supports all geographies, drawing upon over 25,000 global incidents from both internal and external sources.
• Peer analysis: Combines data with our robust metrics to benchmark programmes against selected peers, helping visualise the way in which risk is perceived.
• Data analytics and predictive modeling: Helps to diagnose risk, predict the maximum loss in a “bad” year and strategise the insurance buying mechanism.

All of these can be achieved via WTW’s proprietary Risk and Analytics tools, empowering organisations to make informed decisions through a data-driven approach. By implementing measures from the checklist, businesses can significantly reduce the impact of risk while maintaining an optimised insurance programme. With WTW’s R&A tools, loss outcomes can be stimulated at full range of likelihood levels, demonstrating potential TCoR volatility and enabling evaluation of risk transfer.

For more information about our solutions and how WTW can help with taking informed decisions regarding your risk portfolio, speak to a WTW expert.