Third-Party Dependency refer to operational reliance on external vendors or service providers whose incidents or failures can disrupt business operations, even though the problem originated outside the insured's own systems. Examples include cloud providers, payment processors, software vendors, or key suppliers experiencing cyber attacks or outages. This creates aggregation risks - when one major vendor fails, hundreds of businesses might claim simultaneously, potentially exhausting insurer resources. Insurance addresses this through contingent business interruption coverage, which pays for losses when critical third-party services fail. However, claiming can be challenging because vendors often won't share detailed incident information needed to prove the claim. Policies may limit coverage to specifically named vendors or require minimum downtime periods. Businesses should identify critical dependencies, understand coverage terms for third-party failures, and maintain documentation showing how vendor outages impact operations and revenue.
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